I wouldn’t be pinning my hopes on a tourism-led recovery, and I wouldn’t be ruling out helicopter money.
I’ve got two things for you today.
First: Last week I was talking about the possible impacts the fire would have on the economy.
The obvious big-hit is going to be to tourism, especially in the short-run. Images of the fire have gone global. I’ve got aunties calling me up from Greece to make sure I’m alright.
“Yes, we’ve been quite lucky here in inner-city Ivanhoe, thanks Aunty.”
Some people think the entirety of Australia is closed for business, and that’s a shame.
But, tourism was actually struggling before the fires hit.
The ABS have just released their latest tourism numbers. This is only up to November (counting people takes ages ok?), but it paints a picture of a tourism sector that was already topping out.
This is the chart for tourism numbers by region:
The orange line shows the big boom in tourism from NE Asia, which is pretty much a China story. This chart is China only.
You can see here the phenomenal surge in Chinese tourist numbers following the GFC.
But you can also see that it has topped out already, and if anything, seems to be retracing slightly.
Given the first part of the year is the big tourism season for China, and given the fires have cast such a pall of smoke over that, I’d be thinking Chinese numbers are going to come off a substantial amount.
But putting aside the fires, you can see that the tourism industries that were gearing up for a China-forever boom, are already running out of puff.
And the property markets attached to them are probably going to slump too. Last time I tuned in with Cairns I think they were still hitching their wagon to a huge ongoing surge in Chinese interest. They might be doing a bit of a rethink now.
Anyway, Chinese tourism numbers are going to come off, but the problem is bigger than the fires.
So if tourism is not going to save us, what might?
How about money-printing?
This is an idea that more and more economists are coming around to: that the RBA is going to be forced into some sort of money-printing regime.
In fact, even the most hawkish are coming around to the idea. Last week it was Paul Bloxam at HSBC:
In June 2019, the RBA published its new estimates of unemployment. Whereas previously the central bank had thought that unemployment was around 5 per cent it was now estimating it to be around 4.5 per cent.
…In making this reassessment the RBA gave up on a previous pretence that Australia might be different. For many years, Australia had higher interest rates than elsewhere, but no longer…As a result, earlier narratives that the RBA had used to raise concerns about cutting further, including that rate cuts would not do anything useful, that rates were not the constraint on businesses and that further cuts could pump prime already high household debt, were largely cast aside.
… The economy is in the doldrums and with little room to cut its cash rate further, the RBA may be forced to take emergency action, like a bond-buying program.
This is significant for two reasons: 1. Bloxham is ex-RBA, so he’s got some insight into their inner workings. 2. For a long while he’s been saying that the next move for the RBA was up.
So if even he’s coming around to the money-printing party, it makes me think you can pretty much lock it in.
So maybe it’s not tourism, but helicopter money that’s going to save us?
Watch this space.