Macquarie warns of slow growth to come

Macquarie boss Shemara Wikramanayake has warned Australia faces sluggish near-term economic growth.

Macquarie chief executive Shemara Wikramanayake. Picture: James Croucher

Macquarie boss Shemara Wikramanayake has warned Australia faces sluggish near-term economic growth as a housing correction and the pending federal election raise concerns investment may dry up.

The bank, due to report its full-year earnings on Friday, said falling house prices were starting to weigh on activity in the short term while corporate Australia was likely to hesitate in making investment calls ahead of a May 18 election.

“As you know growth remains sluggish because the housing correction is weighing on activity. We also have a federal election coming and that causes some (slowing) in the very short term … in terms of investment levels,” Ms Wikramanayake said.

Macquarie on Monday joined a growing call for the RBA to cut rates ahead of next month’s election as weak inflation, GDP growth and house price uncertainty stall momentum in the nation’s economy. The fall in house prices along with tighter credit conditions, weak consumer confidence and the election were all blamed by retailer Beacon Lighting yesterday for a downgrade to its earnings guidance.

Those choppy conditions led retail giant Coles to describe a “tale of two cities” among Australian consumers this week, with many families “doing it tough”, although electronics retailer JB Hi-Fi yesterday said its earnings guidance for fiscal 2019 remained on track.

With consumer sentiment mixed, corporate Australia said it was critical that both Liberal and Labor used the election campaign to promote sensible policies across wages, infrastructure and taxes to ensure investment did not stall in the months ahead.

Iron ore giant Fortescue Metals wants to see stable economic conditions after making the decision to spend $US4 billion ($5.7bn) on its Eliwana and Iron Bridge projects this year.

“What’s important to us going forward is we have certainty in terms of policy settings because we’ve made some big investment decisions,” Fortescue chief executive Elizabeth Gaines told The Australian on the sidelines of the Macquarie Australia conference.

“The discussions I’ve been in — where there have been the Prime Minister Scott Morrison and separately the leader of the opposition Bill Shorten — there is certainly an understanding of the importance of the WA mining sector to the Australian economy.”

JB Hi-Fi boss Richard Murray stressed the company was keeping a tight hold on costs as part of a productivity drive and said it would closely watch Labor’s wage focus should Mr Shorten win government. “Wages are going up 3 per cent a year and depending on who is in government that might be even more of a challenge for us,” Mr Murray told the conference. “So we have to find a way to maintain our productivity.”

Toll road giant Transurban repeated a call for greater infrastructure opportunities as it looks out to its next leg of growth beyond its bulging pipeline.

“We would always like to see more infrastructure spending and the ability of the private sector to deliver innovation and partnerships with government on both sides,” Transurban chief executive Scott Charlton said. “These are consistent themes.”

Reflecting the changing economic momentum over the near term has been a rapid shift in the attitude of economists and traders towards earlier interest rate cuts since the surprisingly low inflation data for the March quarter released last week.

However, Ms Wikramanayake maintained Australia was well placed beyond the next few months given the nation’s stable political environment, the government’s strong fiscal position and population growth.

Macquarie sees opportunities for growth in its traditional infrastructure and renewable energy sectors with $US45 trillion required in infrastructure investment by 2030 globally and $US4 trillion in clean power generation.

Australian infrastructure opportunities include the Western Harbour Tunnel and Beaches Link in NSW and North East Link in Victoria and greater risk-sharing between governments and public-private partnerships in the engineering construction sector to reduce risk.

In global renewable energy, Macquarie expects industry to ramp up its adoption of cleaner sources of generation despite significant policy variations between different sides of government.

The falling cost of batteries is also helping to drive a second evolution in renewables after a rapid decline in solar and wind this decade, which Macquarie argues will ultimately change the way consumers interact with utilities as power becomes more decentralised.

Australia’s LNG sector may also spark deal options for the bank with projects potentially seeking infrastructure assets to ease their capital burden.

Macquarie also expects more gas may flow to Australia’s east coast market given the high prices on offer to producers. “The market remains tightened and prices remain high and we can see the LNG producers swing back to supplying the domestic market,” Ms Wikramanayake said.