Aspire CPD

Economics

Too much money, too few investments

23 Nov 2021 8 month(s) ago

The 2020-21 ABS report has some important pointers.

The ABS has released annual national and state accounts for the 2020-21 financial year. There were not many surprises. Aggregate land values relative to Australia’s gross domestic product (GDP) are the highest since 1989, which is probably the least surprising indicator of all. Everybody knows property values are soaring.

Given the economic impact of the pandemic, the Australian economy looks pretty sound, which is maybe more of a surprise:

  • The Australian economy grew 1.5% in chain volume terms in 2020-21
  • Labour productivity rose 1.2%
  • The household saving ratio rose to 15.2%
  • National net worth rose $2.4 trillion to $15.3 trillion

 

The savings rate is almost triple what it was in 2016-17 and national net saving has more than doubled over the same period:

 

It all looks good, but what this points to is what they call a ‘savings glut’: an imbalance whereby too much capital chases too few investments. The stock market is just over $2 trillion, which equals just the rise in net worth in 2020-21. The total value of land in Australia was estimated at $5.8 trillion in 2017, it is probably nudging $8 trillion now.

To say it is overvalued does not begin to capture it. It shows two things of interest to investors. There is a lot more money than investment avenues available in Australia, and what is available is dominated by property.

Small wonder that the super funds have about a quarter of their assets offshore. What would make economic sense is to develop new investment options to boost the Australian national economy. In particular, marshalling equity capital for Australia’s primary industries, whihc are being pillaged by offshore interests, would be a good place to start.

 

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