Blog Political Winds in Australia and the Likelihood of Lower‑for‑Longer Interest Rates Although the Commonwealth Government can borrow for 10 years at the lowest rate on record, the burden of policy support has continued to fall on the Reserve Bank of Australia.
As Australians prepare to go to the polls on 18 May, the middle of this election campaign is an opportune time to revisit the ongoing conflict between politics and effective economic policy. Its implications are also highly relevant as Australia’s economy continues to slow. Politics are inherently focused on the short-term goal of appealing to the electorate, which can lead to populist measures, rather than on longer-term policy, which can potentially benefit the overall economy. In Australia, it has lately become politically popular, and apparently a vote-winner, to achieve “budget balance.” This myopic focus on austerity rather than on longer-term investments that can raise productivity, like infrastructure, is likely to have important consequences for the economy. Indeed, it has been the death knell of many economic expansions historically. Lack of balance While there will no doubt be bouts of potentially vote-winning spending promises by both the Liberal and Labor parties, these are unlikely to tackle the long-term reality: For Australia’s economy to sustainably grow, there needs to be a balance of monetary and fiscal policy settings throughout the cycle. High school economics students learn about the importance of this mix between fiscal and monetary policy, yet politicians seem to have thrown out the textbook. Although the Commonwealth Government can currently borrow in the bond market for 10 years at around 1.8% – the lowest rate on record – the burden of policy support for the economy has continued to fall on the Reserve Bank of Australia (RBA), and by extension, the already heavily indebted Australian household. Some observers are lately hoping policy rate cuts will allow households to lever up even more to support the flagging housing market. The RBA is a highly credible and pragmatic body that has been responsive to economic reality. The expectation of an underwhelming fiscal response to Australia’s slowing economic environment means the RBA is likely to take on the task once again. Investors need to focus on what is likely to happen, not what should happen. So as long as it’s politics as usual, we think investors in Australia need to be prepared for even lower interest rates for even longer.
Blog Assessing Inflation’s Effects Across Emerging Markets The varied responses of individual countries to global inflationary pressures have contributed to elevated real-rate differentials between developed and emerging markets.
Blog Power of Representation: the ‘Us’es’ To celebrate Pride Month, four PIMCO executives share their perspectives on inclusion and diversity in the workplace and the importance of visible representation.
Blog Secular Outlook Key Takeaways: Reaching for Resilience We believe shorter business cycles, elevated volatility, and diminished policy responses warrant a focus on portfolio resilience over reaching for yield.
Secular Outlook Reaching for Resilience Volatility, inflation, and geopolitical strain have countries and businesses focusing on defense. We argue for building resilience in portfolios in this fragmenting world, and delve into risks and opportunities we foresee over the next five years.
Blog After Historic Market Moves, Outlook for Bonds Improves This year’s surge in yields is restoring value to the bond market, especially with the likelihood of a recession rising, although it remains uncertain when market momentum might turn.
Blog Chinese Financials Feeling the Squeeze Amid Sluggish Credit Demand Following strong double-digit profit growth in FY2021, we expect Chinese banks will be less profitable this year as COVID-19 lockdowns continue to disrupt China’s economy.
Blog Fed Battles Inflation Despite the Costs The Federal Reserve ratchets up the pace of monetary tightening, raising questions about the U.S. growth outlook.
Blog Substantial Further Progress? Not Yet, Says the Fed The U.S. Fed stopped short of providing “advance notice,” but a December tapering announcement remains likely.
Blog Supply Chain Crisis: Disruption Should Lead to Greater Diversification Supply chains set to become less dependent on China over time.
Viewpoints China’s Decarbonization Goal Won’t Dent its Appetite for Commodities Any Time Soon China expected to boost demand for some commodities as it transitions to a carbon-neutral economy.
