The data still suggest the Aussie economy is powering along.
I noted at the end of last year that 2022 ended the year with the economic fundamentals in pretty decent shape all things considered.
It certainly could have been worse. There was ample opportunity for the wheels to come off last year, especially with the RBA hiking like a gorilla throwing bananas.
(300 basis points in eight months? C’mon now.)
But the Aussie economy weathered the storm, and weathered it well.
And we don’t get a lot of data in the first few weeks of the year. But the data we did get confirms the thesis that the underlying fundamentals of the Aussie economy are doing very nicely.
The key standout was the retail sales data for November. Economists had been expecting a robust 0.6%. Instead we got a thumping 1.4%. Pow!
Not only that, we got a lot of upward revisions to previous months estimates – the ABS does this every now again. So they’ve come out and said, actually, retails sales in September and October were actually better than we thought they were.
And so we now have retails sales growing at 8% over the year.
Give the lift in the cost of living, and given 300 basis points of rate increases, this is a phenomenal outcome.
Go Aussie households go!
The other data print we got in recent weeks was the (newish) monthly CPI data. That showed headline inflation running at 7.3% over the year to November, dashing hopes that we might have peaked in October.
As far as the RBA’s concerned, that’s moving in the wrong direction.
It makes the chances of another rate hike in February more likely, though I still think we’re pretty close to the end of this rate hike cycle.
So I reckon it’s a 50/50 chance right now of another hike in February.
I think you’d also have to say that if anything, international risks have lessened.
China has relaxed its zero Covid policy and is in the process of opening up. The property sector hasn’t collapsed, despite threatening to all year, and any prospect of civil unrest has disappeared.
China looks like they’re back in the game.
The other major international risk is the war in Ukraine. The European Winter was warmer than expected, which meant that it’s very unlikely now that Europe runs out of gas, so that’s good.
At the same time, Russia has picked up some modest territorial gains, after losing ground in the second half of last year. This suggests that the war is settling down into a prolonged conflict.
That sucks a lot if you’re Ukrainian. It sucks big time. But it does seem to suggest that we’re unlikely to see anything out of the Ukraine that’s going to rock the global economy in the next six months.
So put it all together, and you have a picture of a strong economy getting stronger.
As I said before, the economic fundamentals are strong. This should be a decent year for the Aussie economy and Aussie asset markets in my opinion.
Bring it on!