Wisest place for savings: Property hits 25-year low

Chinese property crisis slows economic growth

Consumer confidence; Chinese economic data

The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 1 per cent to 104.3 in December. In the latest survey, just 7.3 per cent of consumers now regard real estate as the ‘wisest’ place for savings, a 25-year low. But the allocation to shares edged higher from 10.2 per cent in September to 10.4 per cent in December.

Chinese retail sales expanded at a 3.9 per cent annual rate in November (consensus: +4.7 per cent). Industrial production grew at a 3.8 per cent annual rate in November (consensus: +3.7 per cent). Fixed asset investment expanded by 5.2 per cent in the first eleven months of 2021 from the same period a year earlier (consensus: +5.4 per cent). The unemployment rate lifted from 4.9 per cent to 5 per cent.

What does it all mean?

• Consumer sentiment, as measured by Westpac and the Melbourne Institute, fell by 1 per cent in December to a 4-month low of 104.3 points. Sentiment is down by 6.9 per cent on a year ago, but the number of optimists still outweigh the number of pessimists, with the index above its long-run average of 101.4.

• Four out of the five major components of the index decreased in December, with measures of consumer views on their family finances and the economy mostly lower, dipping between 6.3 per cent and 8.8 per cent. Only consumer views on their ‘finances, next 12 months’ (up 2.1 per cent) was positive in the month.

• And there were big declines elsewhere in sentiment, with affordability constraints weighing on consumer views on whether it’s a good time ‘to buy a dwelling’ (down 10.2 per cent). Also, consumer spending intentions deteriorated in December, with the measure of whether it is a ‘good time to buy a household item’ falling by 5.3 per cent, in perhaps a worrying sign for retailers during the Christmas trading period.

• Concerns about the spread of the Omicron virus variant and rising new Covid-19 cases in both NSW (down 3.6 per cent) and Victoria (down 3.5 per cent) weighed on sentiment. In fact, confidence eased in both Sydney (down 5.2 per cent) and Melbourne (down 4.9 per cent). But consumers were more chipper in the relatively “Covid-free” states of South Australia (up 7.1 per cent), Queensland (up 3.4 per cent) and Western Australia (up 3.2 per cent).

• Westpac economists also reported that consumers have become increasingly aware of price pressures with 21 per cent of respondents recalling news on inflation in December, up from 5 per cent a year ago.

• Understandably, consumers remain cautious about their savings and investments, given the uncertain health and economic backdrop. In December, half of respondents nominated ‘bank deposits’ (28.3 per cent) or ‘pay down debt’ (22.1 per cent) as their preferred options as the ‘wisest place for savings’.

• And consumers have become more risk averse towards property amid affordability constraints, slowing home price growth, elevated mortgage debt, a tightening of lending standards and rising fixed mortgage rates. In fact, just 7.3 per cent of consumers surveyed in December nominated ‘real estate’ – the fewest in 25 years – as the ‘wisest place for savings’. The allocation to shares was relatively stable in December at 10.4 per cent, but just 4 per cent of respondents intend to spend their savings, down from 6.6 per cent in September.

• China’s economy slowed in November as the country contends with a confluence of issues, including a regulatory crackdown, property market turmoil, supply chain disruptions, semiconductor shortages, persistent coronavirus outbreaks and commodity price volatility.

• Delta virus outbreaks that began in Inner Mongolia in mid-October likely put downward pressure on consumer spending in November. Rising unemployment for those aged 16-24 years – at 14.2 per cent in December – also crimped consumer spending, despite solid ‘Singles Day’ sales. Retail spending was up by 3.9 per cent in November on a year ago, easing from a 4.9 per cent annual growth rate in October with spending at restaurants and catering dipping 2.7 per cent amid renewed government social distancing measures.

• Industrial production rose, consistent with an upswing in supply-driven economic activity, with output lifting to 3.8 per cent growth in November when compared to last year from a 3.5 per cent annual pace in October. A strengthening in export growth – on the back of robust external demand – and an easing of energy bottlenecks boosted factory output.

• Fixed asset investment slowed with the annual growth rate declining to 5.2 per cent in the 11 months to November from the 6.1 per cent rate in the 10-month period through to October. Property investment grew at 6 per cent rate over the same period. A government crackdown on property speculation continues to drag on investment as the China Evergrande Group crisis weighs on home prices and sales amid a tightening of financing rules. That said, the issuance of local government special bonds – used primarily to fund infrastructure investment – lifted in November, implying a lift in funding for big infrastructure projects.

• China’s Central Economic Work Conference was held last week with policymakers suggesting that a top economic priority for 2022 is “ensuring stability.” Already, the People’s Bank of China has cut the amount of cash that banks must hold in reserve to bolster slowing growth.

• The Chinese government has also vowed to “front load” policies and keep the country’s monetary stance flexible. And fiscal policy is expected to play the main role in supporting China’s economic growth next year. Chinese authorities plan to implement new tax breaks, reduce fees for businesses, and adopt a “moderately proactive approach” to increasing infrastructure investment. An increase in infrastructure spending could boost demand for Aussie iron ore.

• Commonwealth Bank (CBA) Group economists expect the Chinese economy, as measured by gross domestic product (GDP), to grow by 5.1 per cent in 2022.

What do you need to know?

Consumer confidence – December

• The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 1 per cent to 104.3 in December to be down 6.9 per cent on a year ago. The survey was taken over the period December 6-9, 2021.

• Four of the five major components of the index fell in December.

Of the other key sub-components, the ‘time to buy a dwelling’ index plunged by 10.2 per cent in December. The ‘house price expectations’ index eased by 1.3 per cent. And the ‘unemployment expectations’ index lifted (deteriorated) by 9.3 per cent in December.

• Wisest place for savings: Banks (28.3 per cent); Pay debt (22.1 per cent); Shares (10.4 per cent); Real Estate (7.3 per cent, 25-year low); Don’t Know (9.7 per cent); Superannuation (7 per cent); and ‘Spend it’ (4 per cent).

China economic data – November

• Retail sales expanded at a 3.9 per cent annual rate in November (consensus: +4.7 per cent), slower than the 4.9 per cent pace in the first 10 months of the year. Over the year to November, spending rose the most on petroleum (+25.9 per cent). But automobile sales plunged 9 per cent. Online retail sales soared 15.4 per cent in the first eleven months of 2021 from the same period a year earlier.

• Industrial production rose at a 3.8 per cent annual rate in November (consensus: +3.7 per cent), above the 3.5 per cent annual gain in October. Over the year to November, manufacturing output lifted by 2.9 per cent, electricity output jumped 11.1 per cent and mining production rose by 6.2 per cent. Production rose the most for telecommunications/computers (+13.5 per cent), but fell 11.2 per cent for ferrous metals smelting.

• Fixed-asset investment expanded by 5.2 per cent in the first 11 months of 2021 from the same period a year earlier (consensus: +5.4 per cent) after expanding at a 6.1 per cent annual rate in the first 10 months of 2021. Over the year to November, investment by the private sector rose by 7.7 per cent and investment by state-owned enterprises increased by 3 per cent. By industry, investment rose most for specially used equipment (+25.3 per cent), but investment in car manufacturing fell by 3.2 per cent.

• Property investment expanded at a 6 per cent annual pace in the first 11 months of 2021 from the same period a year earlier (consensus: +6.1 per cent).

• The unemployment rate (nationwide survey-based jobless rate) rose from 4.9 per cent to 5 per cent in November (consensus: 4.9 per cent).

• China’s new home prices rose by 3 per cent in the first 11 months of 2021 from the same period a year earlier (consensus: +3.4 per cent).

Published by Ryan Felsman, Senior Economist, CommSec