Developed global equity share markets returned 4.1% in July, largely offsetting the losses in June when markets dropped following the Brexit decision. Equity markets showed reasonable earnings in the US and Europe with investor expectations of further monetary and/or fiscal stimulus in the UK, Japan and Europe. Emerging market shares increased 4.3% in July assisted by gains in Brazil and India.
The Australian economy continued to perform reasonably well, helped by the housing and services sectors – although employment fell by 3,900 jobs in August, which was weaker than expected. The Reserve Bank reports that measures of household and business sentiment remain above average. The Westpac-Melbourne Institute Consumer Sentiment Index for Australia rose 1.1% in October, according to Westpac, signalling a sustained life in consumer sentiment over the last year. Higher commodity prices have supported a rise in Australia’s terms of trade in the last quarter following the substantial declines in recent years. Weak inflation (1.0% to June quarter) and sluggish wages growth prompted the RBA to cut interest rates again to 1.5% in early August but they left the cash rate unchanged at their 4 October meeting.
GDP in Australia grew by 3.3 percent year-on-year in the second quarter of 2016, accelerating from a 3.1 percent in the March quarter and compared to market expectations of a 3.4 percent growth. NAB forecasts Australia’s economic growth will remain at around 3.0% in 2016 and 2017 with significant variation across industries and states. “The risks to the outlook going into 2018,” NAB reports, “are becoming increasingly apparent, as LNG exports flatten off at a high level and the dwelling construction cycle turns down. Against these headwinds, the economy may require additional policy action to support growth, especially if the RBA hopes to see inflation return to within its 2-3% target band.”
In terms of the Australian labour market, while the local market continues to reflect a level of global and local uncertainty, it is relatively stable with the jobs outlook steady in the coming quarter. SEEK data shows a 3.2% increase in job ads to June 2016. Manpower reports that 18% of employers forecast an increase in their staffing levels and that hiring prospects are five percentage points stronger year on year. NAB predicts that structural shifts in the economy and modest economic growth will put upward pressure on the unemployment rate. Most growth is in part-time employment and there is significant variation in employment growth across states and territories. Growth in labour costs is subdued with the Wages Price Index steady at around 2.1%.
On the up side, Department of Employment projections suggest that employment overall will increase by 8.3 per cent over the five years to November 2020. The long term structural shift in employment towards services industries is projected to continue with forecast growth of 14.8 per cent in the Professional, Scientific and Technical Services Industry over the five years to November 2020, second only to Health Care and Social Assistance. The Department’s figures confirm that the projected high rate of employment growth reflects ongoing strength in demand for the services of qualified and highly educated workers throughout the economy. As part of the transition to a knowledge-based economy, growth in professional business services will be a critical driver of productivity and innovation, and in the coming decade, managers and professionals will play a critical role in the dispersal of Australia’s STEM capability across industry.
With the launch of the National Innovation and Science Agenda in December 2015, the Australian Government has reiterated its commitment to innovation and science. The agenda recognises that the “talent and skills of our people is the engine behind Australia’s innovative capacity.” (Department of Prime Minister and Cabinet, 2015).