Australia’s GDP beats expectations

Australia’s GDP beats expectations

Australia’s economy is showing signs of picking up momentum， with a stronger than expected GDP growth of 2.5% over the past year.

It is a marked acceleration from the June quarter’s disappointing annual growth rate of 2% and the fastest economic growth in 18 months， but still below the economy’s long-term trend.

GDP expanded by 0.9% in the September quarter against market expectations of 0.8%.

The stronger performance was driven by a pick-up in net exports and in particular by growth in mining activity which was up 5.2% after a decline in the previous quarter.

Exports in seasonally adjusted terms rose 5.4%， while imports fell 1.8%.

The oil and gas sector drove the rise with a 10.4% increase， while iron ore， up 5%， and coal， up 4.6%， also made strong contributions.

The principal black spot was a 6.4% decline in rural exports for the quarter.

Growth in the export sector more than offset the falls in private and public investment， which were down 2.9% and 9.2% respectively.

However JP Morgan economist Tom Kennedy said it appeared “all Australia’s eggs are in the net trade basket”.

“As a result， the domestic economy excluding trade contracted 0.6% in the quarter， the largest quarterly contraction since the financial crisis，” Mr Kennedy said.

He noted the booming trade outcome was， in large part， supported by a rebound in resources shipments， following weather-related port closures in the second quarter.

“As such， the magnitude of today’s contribution is unlikely to be repeated in upcoming releases，” Mr Kennedy said.

The biggest component of GDP， household consumption， increased 0.7% in seasonally adjusted terms， while government consumption also rose 0.7%.

International trade deficit slumps 38% to AU$3.3b in October

Australia’s international trade has deteriorated dramatically， with the deficit blowing out by 38% to AU$3.3 billion in October.

It is the largest monthly trade deficit since the weather-affected AU$3.5 billion deficit in June 2015， and the fifth largest on record.

The result was driven by an AU$829 million drop in exports， while imports remained flat.

The blow-out surprised the market which had forecast a fairly flat result in line with September’s AU$2.4 billion seasonally-adjusted deficit.

The fall in exports was driven by an unexpectedly poor performance in the value of commodity shipments， with both prices and volumes showing weakness.

Iron ore exports fell by AU$366 million or 6%， while the value of metal shipments tumbled 16%.

Both the value and volume of iron ore exports to the key China market fell in October.

Overall the China iron ore trade fell by 15% ― or AU$426 million ― on the back of an 11% decline in volumes and a 4% price drop.

Rural exports also went backwards， with the value of grain shipments falling 10% and meat down 4%.

The figures represent a poor start to the fourth quarter’s current account data， which flows directly into the next GDP reading.

Australia’s better than expected third quarter economic growth of 0.9% was driven by a strong 5.4% pick-up in net exports.

JP Morgan’s Tom Kennedy said the weakness was across the board.

“Australia’s monthly port data indicates October’s unimpressive export growth was a combination of both price and volume weakness， and is consistent with the idea that the bumper net trade contribution in GDP data is unlikely to be repeated，” Mr Kennedy said.

The blow-out supports the view that the Australian dollar is still too high to support strong growth commodity exports.

RBC’s Michael Turner said the Australian dollar has been moving in the “wrong” direction and putting commodity prices such as iron ore under greater pressure.

“The peak-to-trough move in the Australian dollar price of iron ore since September has been an eye-catching 33%， while the dollar against the US dollar is up 2.4% over the same period but， more importantly， the nominal trade-weighted index is up 4.5%，” Mr Turner said.

Australia develops new terror alert system to deal with “probable”threat of attack

The Australian government has developed a new terrorism warning system aimed at informing the public about the likelihood of terrorist attacks in Australia.

The National Terrorism Threat Advisory System （NTTAS） was announced on Nov.26 by the Attorney General George Brandis and Justice Minister Michael Keenan.

In a statement， the two ministers said NTTAS was designed to provide as much information as possible to Australians in the current threat environment.

NTTAS has five levels， which include Certain （red）， Expected （orange）， Probable （yellow）， Possible （blue） and Not expected （green）， to indicate the national threat level. The current threat of an attack in Australia is “probable.”

Under the existing system， the terror threat escalates from low to medium， high and then extreme. The level was raised to high in September last year.

The “probable” threat level means credible intelligence indicates individuals or groups have developed both the intent and capability to conduct a terrorist attack.

The government paper says the“radicalization and recruitment of Australians is increasing. Violent extremists are reaching out to those willing to listen and encouraging them to either join ISIL （Islamic State of Iraq and Levant） or to conduct attacks in its name.”

The small number of Australianbased Islamic State supporters might be emboldened by the perceived success of the attacks abroad， it said.

“Elements of some of these recent attacks， such as the use of firearms and explosives as weapons， the capturing of hostages， and the focus on ‘soft’ targets， could be employed in an attack in Australia.” the paper said.

The National Threat Assessment Centre （NTAC） will work with the Australian Security Intelligence Organisation （ASIO） to discuss current intelligence and if any change in the threat level is required， then the Australian government will issue a statement with further advice for Australians.

The NTTAS was developed following a review of Australia’s counterterrorism machinery earlier this year， with all states and territories agreeing to the changes in July.

CBA defends practices at parliamentary inquiry into Bankwest purchase

A parliamentary inquiry into allegations the Commonwealth Bank of Australia （CBA） forced Bankwest borrowers into defaults has heard Bankwest “had no alternative” but to protect its financial position.

Following the purchase of Bankwest， the CBA was forced to write off about AU$2.8 billion in Bankwest loans in 2009.

As of December 2008， however， the CBA’s provision for bad debts was in fact only AU$630 million.

The Commonwealth Bank’s chief counsel， David Cohen， told the committee the bank called in receivers on 66 customers in the year ending December 2009 and a further 116 in the year ending December 2010.

The submission to the Joint Parliamentary Committee stated that the CBA agreed to purchase Bankwest after its owner HBOS became financially distressed during the global financial crisis.

The Commonwealth Bank thought it had secured an attractive price for Bankwest.

“Bankwest had 5% of the market share，” Mr Cohen said. It was clear though that Bankwest’s books were full of bad debts.

“Unfortunately some existing highly leveraged or high-risk developments and businesses failed or suffered a significant deterioration in their ability to service their loans，” the submission stated.

“In these circumstances Bankwest had no alternative but to take steps to protect its position，” the bank said.

The allegation is that built into the contract for this purchase were ‘clawback’ provisions， in which the purchase price would be reduced for every loan which Commonwealth Bank determined was “bad”.

The bank， however， said the price adjustment mechanism allowed for changes to the quantity and quality of Bankwest’s loan book at the time it was bought by CBA and that it did not allow for any clawback for loans which subsequently went bad.

The Commonwealth Bank has been accused of action against several Bankwest customers in anticipation that the original purchase price would be reduced. The bank said it had done nothing wrong.

“We believe it is never in the interests of a customer， the bank or the economy to lend money to a customer who is unlikely to meet their contractual obligations and default on their loan，”the CBA said.

Some analysts have suggested that for some customers the loan to valuation ratio was improperly used to manufacture customer defaults.

“We have seen no evidence of such activity happening at either a systemic or an individual level，” the bank said.

“Indeed， we believe there is no incentive for doing so.

“At Commonwealth Bank， when assessing whether a loan will continue to be viable， the ability to meet repayments and interest （serviceability） remains the key consideration and is more important than loan criteria such as a borrower’s loan to valuation ratio.

“To Commonwealth Bank’s knowledge， it is exceedingly rare for a bank to instigate recovery proceedings on the basis of loan to valuation ratios or ‘nonmonetary’ covenants alone and in the absence of missed payments.

“More commonly， both types of contractual breaches occur before a bank takes legal steps to recover money it is owed，” the bank said.

The committee has put forward the idea that a third set of eyes look over the bank’s lending practices.

Philip Ruddock proposed the external review to CBA’s chief financial officer David Craig and Mr Cohen.

“One suggestion has been a call for a royal commission，” Mr Ruddock said.

“A fall back strategy is that you could agree we are going to have all of these matters looked at again. To try and resolve it.”

The bank has suggested a number of policy changes， including the introduction of a onemonth minimum period between when a customer defaults on a loan and when the bank requires repayment of the loan.

Luye to buy Australian hospital group for$688 mln

Luye Medical Group has agreed to buy private equity-owned Australian hospital operator Healthe Care Pyt Ltd， the companies said， in the Chinese firm’s first foray into the hospital sector.

The final price was not disclosed but local media had reported the deal was worth AU$938 million （US$688 million）.

Luye Medical beat rival bids from Baring Private Equity and Bain Capital which banking sources said were also in the running for Australia’s third-largest privately owned hospital operator.

The sources declined to be named as they were not authorised to speak about the transaction.

“I strongly believe that Healthe Care will provide us with a platform upon which we can build a world class and highly successful healthcare services business not only in Australia and China， but also in many other countries in Asia，” said Luye chairman Liu Dian Bo.

The company， part of the privately owned Luye Group， was advised by Barclays.

Archer Capital had bought Healthe Care from CHAMP Private Equity in 2011 for AU$230 million. Morgan Stanley and Luminis Partners advised Archer on the sale.

Healthe operates 17 private hospitals across five states with more than 1，800 hospital beds according to information on its website.

Spanish giant Ferrovial bids for Australia’s Broadspectrum

Shares in Australian company Broadspectrum soared on December 7 after Spanish construction giant Ferrovial returned for a second tilt at the services provider， a year after an initial bid was knocked back.

Madrid-listed Ferrovial had offered AU$2.0 a share in October last year， valuing Broadspectrum， then known as Transfield Services， at around AU$1.0 billion （US$733 million）， but it was re- jected as poor value.

Since then Broadspectrum shares have slumped and Ferrovial， which specialises in infrastructure and construction with a presence in more than 25 countries， returned with a new all-cash AU$1.35 a share offer.

The Spanish multinational’s chief executive Inigo Meiras said in the bidder’s statement that， “Ferrovial is making a long-term decision to seek to establish a presence in the Australian market”.

“The offer price is compelling value for Broadspectrum shareholders.”

Broadspectrum， which has battled falling earnings in its resources and industrial business and uncertainty over a contract to maintain offshore detention centres for the Australian government， recommended shareholders “take no action”.

“The board of Broadspectrum will consider the offer and advise shareholders of its views shortly，” added the firm， which provides electrical， commissioning， and mechanical services to the resources， industrial and construction sectors.