The week that was & the week ahead

The week that was      

There was good news and bad news this week.

The good news was the budget outcome for 2016-17 was $33.2 billion, some $4.4 billion lower than assumed at the time of the budget in May. The bad news was the budget came in at $33.2 billion which was $22.5 billion above the level assumed in the 2014 budget. Overall, it was a reminder that Australia is still running hefty budget deficits despite the relatively good news on employment, commodity prices and company profits.

The release also confirmed that net government debt hit a peace-time high of 18.4 per cent of GDP, which marks nine years in a row of rising debt. Despite the recent run of deficits and debt accumulation, Australia’s overall budget position is in relatively good shape. The next test for whether there is any progress to lower deficits and a topping out in government debt will be in December when the government releases its Mid Year Fiscal and Economic Outlook. It is too early to be sure which way the revised forecasts for the budget will go.

Source: Westpac

The week ahead

In a week heavy with data and the regular meeting of the RBA Board, there will be keen interest in the retail trade data for August.  Making up close to one-quarter of GDP, trends in retail sales have an important influence on the strength of the economy. Retail spending has been dealing with a series of conflicting pressures. On the positive side is the solid growth in employment, the wealth effect from the house price boom and ongoing low interest rates which should be helping the cash flow of debtors and boosting spending.

On the downside is the record low wages growth which is crimping incomes, the still high levels of underemployment and broader cost of living pressures associated with electricity prices and other essentials. For householders, there is not a lot of spare cash to add to retail turnover growth. Last month, retail sales disappointed with a flat outcome, and the market consensus is a moderate rebound in spending.

Source: CBA