Is it happening all over again?

The Victorian economy is in trouble, according to business leaders quoted in a piece published in December 2024 as part of a series on the state by the Australian Financial Review.

The most recent unemployment statistics were cited as evidence. Victoria has the highest unemployment rate in the nation at 4%, having increased over the past year. Stunting home prices and an increase in business failures were also mentioned.

One article in the Financial Review looked at the decline in conferences, while another earlier in the month highlighted data indicating a declining rate of Victorian business start-ups. All this was referred to as evidence of a state struggling under the weight of $8.6 billion in levies imposed in the Labour Party’s 2023 budget to curb a mountain of state debt that is forecast to reach $188 billion by 2028.

The same themes were echoed in a feature on Victoria that was published by The Australian.

“What the hell has gone wrong with Victoria?” was the question posed to the readers. Taxation and public debt were major contributors to the impending economic disaster. The Australian deemed the state to be at best, trapped in stagnation, forcing it to cover falling private investment and expenditure with ever greater public largesse. And at worst as the spending and debt build-up sets off the alarms, a vicious spiral is triggered until the whole Ponzi scheme collapses.

However, are things really that bad? What is the real picture of the economy?

Some positive signs

Indeed, Victoria’s unemployment rate is high when compared to the rest of the nation and is on the rise. However, it has remained steady for the past four months, which is indicative of the effects of interest rate hikes over the preceding two years.

In addition, the increase over the past 40 years has come from a very low base and is still at a historically low level, far below the 1990s highs.

The population in the labour force is still increasing at a steady rate. Now, the participation rate is at its highest level ever. In seasonally adjusted terms, the labour force grew by 20,000 last month, and nearly all the new hires found work.

There has been a noticeable increase in employment since the pandemic ended. In seasonally adjusted terms, employment has grown by 268,000, or 8%, since January 2023. This growth represents 37% of the total number of jobs created in Australia during that period.

Although the percentage of jobs created is declining, it still exceeds the population share of the state and is based on an incredibly high starting point. In July, Victoria accounted for 55% of all jobs created nationally.

According to the Australian Financial Review, the most recent employment figures were “unexpectedly strong.”

What about business insolvencies?

Insolvencies in Victoria have increased, rising 61% in September over the same month the previous year. In Australia, however, they are also growing at a faster rate, with the national number increasing by 70%.

We cannot determine whether the number of conferences in Victoria is increasing or decreasing because there is no reliable database to make that determination.

Furthermore, although Victoria may have lagged behind other states in terms of the number of new start-ups per 1,000 businesses, the total number of businesses has grown by over 31,000, or 3%, since the year started.

How are house prices and rents holding up?

Indeed, the cost of homes is falling. Several new property taxes included in the 2023–2024 state budget to help pay for pandemic-related debt are at least partially to blame for the fact that they are currently about 20% below their peak during the pandemic.

High interest rates have made housing more affordable than ever before, which is good news for those who are eager to purchase their first home. This decline in home values contrasts with a rise in rental income during the same time frame.

The median rents in Victoria have risen by 13.3% in the past 12 months and by 4.3% in the following quarter. Perhaps helping those who believe that the economy is in trouble, the rental stock dropped for the first time in the March quarter.

However, that decline only amounted to 2.7% of the stock, or hardly 10,000 homes. Someone had to buy those properties, and most of them were probably sold to first-time purchasers who had no overall impact on the rental market due to their changing tenure. Such a wealth redistribution might not be a bad thing.

Debt is high – but so is infrastructure spending

Victoria’s economy, like the rest of the nation, has undoubtedly been slowing down. When it raised interest rates last year, the Reserve Bank aimed for precisely that result. However, there is scant evidence that Victoria is reverting to the catastrophic course of the early 1990s.

Because of a severe recession at the time, state debt increased alarmingly. This time, the state’s debt has increased significantly, primarily to finance a pipeline project of a magnitude never before seen in the state.

Spending on infrastructure has increased fivefold in the last ten years, reaching $25 billion annually. Many jobs are included in those figures, and soon, a large portion of that infrastructure will be operational, increasing the state’s economic potential.

The surprisingly strong economy of Victoria is influenced by several factors. One key element is the return of international students, which has contributed to a net increase in international migration of 152,000 people in the year ending March 2024. This figure represents nearly 30% of the total population growth in Australia.

However, some people argue that Victoria has become a “poor state” due to rapid population growth driven by migration, a lack of output growth, and a long-term decline in household income per capita.

To address these issues, Treasurer Tim Pallas is hopeful that the increased investment in debt-funded infrastructure will provide the necessary boost in productivity.

While various indicators show that the economy of Victoria is slowing, this trend is consistent with a national pattern. A closer examination of the data reveals some growth indicators, suggesting that there is no immediate cause for concern.

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Australia has emerged as the most preferred destination for the HNWIs, with 5,200 millionaires around the globe choosing it as their home, according to the same report.

The net HNWI inflow to the UAE in 2023 will surpass the 2022 tally, which saw 4,000 arrivals, the Henley Private Wealth Migration Report 2023 said.

Moreover, the crisis-ridden United Kingdom, whose economy has been performing poorly among its G7 peers, will see a larger net exodus of millionaires than Russia in 2023 as HNWIs are warry about the European country’s post-Brexit economic landscape as well as a government policy change that has removed permanent non-domicile tax status.

Almost 3,200 millionaires are expected to leave the UK this year, while 3,000 are expected to exit Russia. Growth engines of Asia, China and India too will see departures of HNWIs, with net losses of 13,500 and 8,000 millionaires respectively.

The total number of millionaires leaving the UK is expected to double, as 1,600 left in 2022, the Henley Private Wealth Migration Report said.

The study has placed Singapore in the third rank (in terms of millionaires’ arrivals), with a net inflow of 3,200 HNWIs, its highest on record, followed by the USA with an expected net inflow of 2,100 millionaires.

The other popular destinations for HNWIs in 2023 will be Switzerland, Canada, Greece, France, Portugal and New Zealand. Israel is predicted to fall out of the top 10 with its net inflow of millionaires to 600, compared to 1,100 in 2022.

Dr Juerg Steffen, CEO of Henley & Partners, told Zawya that there had been steady growth in millionaire migration over the past decade, with global figures for 2023 and 2024 expected to be 122,000 and 128,000, respectively.

“In general, wealth migration trends look set to revert to pre-pandemic patterns this year, with the notable exceptions of former top wealth magnets, the UK and the US,” the official said.

Steffen said the UK’s peak net HNWI outflow was 2017, following the Brexit referendum, when the European country voted to leave the European Union (EU) in 2016.

“While net losses dropped slightly between 2017 and 2019, the 2023 forecast indicates a far more significant millionaire exit is currently underway,” the report said.

Brexit and a government policy to remove permanent non-domiciled taxpayer status had made the UK less hospitable and welcoming to HNWIs.

Sunita Singh-Dalal, partner, private wealth and family offices at law firm Hourani & Partners told the media that unprecedented political volatility, rising debt, a dysfunctional healthcare system, high crime rates, and a general sense of lingering malaise, had “clearly tarnished the lustre of London” for millionaires.

The United States has also been less popular for migrating millionaires than pre-Covid, owing in part to the threat of higher taxes, the Henley Private Wealth Migration Report said.

However, the world’s largest economy is still attracting more HNWIs than it loses to emigration, with a net inflow of 2,100 projected for 2023, although the figure has dropped from a net inflow of 10,800 in 2019.

The remainder of the top 10 countries that will lose the most millionaires in 2023 are Brazil, Hong Kong, South Korea, Mexico, South Africa and Japan.

UAE’s Non-Oil Sector Outperforms GCC Peers

Listed companies in Dubai and Abu Dhabi have recorded over 50% jump in net profits year-on-year in the 2023 first quarter, outperforming their Gulf Cooperation Council (GCC) peers, whose quarterly profits declined on the back of a fall in energy and commodity prices.

Dubai-listed companies saw their net profits jump by 51.2% to reach USD 4.8 billion, compared to USD 3.2 billion in the 2022 first quarter. Kamco Invest, in its ‘GCC Corporate Earnings Report Q1-2023′ reports, said that the growth was primarily driven by earnings growth in the banking, real estate and capital goods sectors.

Also, Forbes’ latest list shows that four of the top ten listed companies in the Middle East are from the UAE.

As per Forbes’s flagship ranking of the Middle East’s top 100 listed companies for 2023, UAE’s International Holding Company (IHC) jumped from 12th place in 2022 to the fifth spot, followed by the First Abu Dhabi Bank, Emirates NBD and Taqa, who are positioned in the tally at the eighth, ninth and tenth spots respectively.

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But with concerted action – including global efforts to cut greenhouse gas emissions and robust development planning at the country level – this worst-case scenario of over 140mn could be dramatically reduced, by as much as 80%, or more than 100mn people.

The report, Groundswell – Preparing for Internal Climate Migration, is the first and most comprehensive study of its kind to focus on the nexus between slow-onset climate change impacts, internal migration patterns and development in three developing regions of the world: Sub-Saharan Africa, South Asia, and Latin America.

It finds that unless urgent climate and development action is taken globally and nationally, these three regions together could be dealing with tens of millions of internal climate migrants by 2050. These are people forced to move from increasingly non-viable areas of their countries due to growing problems like water scarcity, crop failure, sea-level rise and storm surges.

These ‘climate migrants’ would be additional to the millions of people already moving within their countries for economic, social, political or other reasons, the report warns.

World Bank Chief Executive Officer Kristalina Georgieva said the new research provides a wake-up call to countries and development institutions.

“We have a small window now, before the effects of climate change deepen, to prepare the ground for this new reality,” Georgieva said. “Steps cities take to cope with the upward trend of arrivals from rural areas and to improve opportunities for education, training and jobs will pay long-term dividends. It’s also important to help people make good decisions about whether to stay where they are or move to new locations where they are less vulnerable.”

The research team, led by World Bank Lead Environmental Specialist Kanta Kumari Rigaud and including researchers and modelers from CIESIN Columbia University, CUNY Institute of Demographic Research, and the Potsdam Institute for Climate Impact Research – applied a multi-dimensional modeling approach to estimate the potential scale of internal climate migration across the three regions.

They looked at three potential climate change and development scenarios, comparing the most ‘pessimistic’ (high greenhouse gas emissions and unequal development paths), to ‘climate friendly’ and ‘more inclusive development’ scenarios in which climate and national development action increases in line with the challenge. Across each scenario, they applied demographic, socioeconomic and climate impact data at a 14-square kilometer grid-cell level to model likely shifts in population within countries.

This approach identified major ‘hotspots’ of climate in-and out-migration-areas from which people are expected to move and urban, peri-urban and rural areas to which people will try to move to build new lives and livelihoods.

“Without the right planning and support, people migrating from rural areas into cities could be facing new and even more dangerous risks,” said the report’s team lead Kanta Kumari Rigaud. “We could see increased tensions and conflict as a result of pressure on scarce resources. But that doesn’t have to be the future. While internal climate migration is becoming a reality, it won’t be a crisis if we plan for it now.”

The report recommends key actions nationally and globally, including:

• Cutting global greenhouse gas emissions to reduce climate pressure on people and livelihoods, and to reduce the overall scale of climate migration
• Transforming development planning to factor in the entire cycle of climate migration (before, during and after migration)

Investing in data and analysis to improve understanding of internal climate migration trends and trajectories at the country level.

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According to the United Nations, there are three times more internal migrants than international migrants in the world. However, these migrants command much less attention in political debate and planning processes than international migrants. In addition, most migrants settle in cities and yet statistics on the number of migrants in cities are limited, particularly in developing economies where this information could inform better urban planning and ensure the preparedness of cities for migration.

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The background:

The Partnership Framework on Migration was launched in June 2016 to step up as a priority cooperation with countries of origin and transit in Africa. Work along the Central Mediterranean Route has further been enhanced since the adoption of the Joint Communication on the Central Mediterranean Route in January and the Malta Declaration of February 2017. Measures taken are aimed at saving lives along the migratory routes, increase protection of migrants and refugees, enhance resilience of host communities and address root causes of migration.

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Lewis Crofts and Matthew Holehouse

October 20, 2016: Before UK and EU officials get down to the detailed work of unpicking laws and drafting the transitional measures to govern Brexit, they may first have to deal with the €40 billion the UK should pay into EU coffers to serve out its time as a full EU member.

The money is expected to become a negotiating chip with UK officials under pressure to curtail payments to a club it will no longer be a member of.

UK premier Theresa May is planning to start formal exit talks by the end of March next year, triggering two years to negotiate divorce terms. Those talks will have to resolve questions over UK businesses’ continued access to the EU market and restrictions on the movement of EU citizens on British soil.

Curbing immigration and ensuring full market access are often presented as a trade-off, forming the main axis to the negotiations. More of one means less of the other. But this misses the point.  A much more incendiary area will be the outstanding bill the UK has to pay.

MLex understands officials are working on a figure of potentially €40 billion covering the period to the end of 2019, when the country is expected to leave the union.

EU leaders have stressed that during negotiations, the UK will remain a full EU member, enjoying the same rights and being subject to the same obligations as other states. This clearly means it must pay its bills.

But in reality, the UK government could put the budgetary contributions at the forefront of negotiations, in the hope of gaining leverage. At least, that’s what Brussels officials are expecting.

The EU will be keen to obtain the funds, but May will come under public and political pressure to scale back payments.

According to a ‘landscape’ assessment from the EU’s Court of Auditors published in November 2014, the EU’s ‘debts’ — comprising undelivered spending commitments, purchases and staff pensions — ran to €326 billion. The spending is not covered by the current seven-year budget.

The UK’s contribution to the total EU budget is 12.3 percent, which puts its share at €40 billion.

There are two clear types of payment at stake: one to settle its outstanding liabilities up to the end of EU membership, and another that may feature future payments after Brexit.

The latter could cover the costs of access to the EU’s single market or the UK’s continued participation in certain European programs for, say, research and development or regional support.

In reality, negotiations are likely to blur the distinctions between those two pots.

A central plank of the Leave campaign in the referendum was the claim that EU membership cost UK taxpayers £350 million a week. Leaving the EU would mean UK ministers could themselves choose how to spend this money, the Leave camp argued.

To date, Theresa May and her ministers have conspicuously said nothing about whether the UK will continue to make payments to the budget.

Asked about budget payments, May’s spokeswoman said she would not give ‘a running commentary on all the minutiae’ of the negotiations, which will cover ‘a whole range of issues and angles to our relationship’.

But given the Leave campaign’s spending promise during the referendum, the prospect of continued payments of any size into EU coffers after Brexit could be politically unpalatable for many pro-Leave lawmakers.

May’s spokeswoman said that a pre-condition is that ‘the decisions on how British taxpayers’ money is spent should be a decision for the UK’.

That may leave on the table a scheme like Norway’s. Oslo pays billions into social reform and climate schemes in eastern and southern Europe as an entry fee for access to the single market. Unlike normal EU spending, however, the schemes are directly approved and audited by Norwegian officials.

And if the UK is prepared to pay its €40 billion bill, or commit to continued payments into some EU programs, it could win some leverage in exit negotiations.

Spending under the EU’s seven-year budget is pushed to its upper limits, with the migration crisis and terrorism producing lengthy bills. The hard truth is: Brussels needs the money and the UK is one of the largest net contributors to the EU budget.

Lewis Crofts and Matthew Holehouse are from MLex, the regulatory newswire

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Suparna Goswami Bhattacharya

August 3, 2016: Of late, China has been less in the news for its ‘slowdown’. Economic activity in the country has stabilised in recent months, mostly on the back of the property market rally and strong infrastructure investments.

But, there is another challenge before the economy — slowing growth in labour productivity. The country is moving away from manufacturing towards services, a phenomenon which is called deindustrialisation. Though most economies in the world go through this phase, in China’s case it has been ‘premature’.

Deindustrialisation is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially heavy industry or manufacturing industry. It implies that productivity growth through rural-urban labour migration has started to slow, clouding the medium/long-term growth prospects if this trend is entrenched.

Qu Hongbin, chief China economist, HSBC, says both economic theory and empirical evidence suggest that premature deindustrialisation in developing countries can be damaging. “It blocks the main channel of productivity growth, and therefore reduces the economy’s potential growth rate and its prospects of catching up with more advanced economies. Given that China’s GDP per capita is only 14% that of the US, we believe it is way too early to shift towards services-led growth,” says Hongbin.

Around 2008-09, the industrial sector was affected by weakening external demand, which forced China to follow a different path.

Glenn Maguire, chief economist, South Asia, ASEAN and Pacific, ANZ, says, “The model was to shift economic growth away from reliance on exports and investment towards domestic consumption. Aligned with this, the government aimed to accelerate the growth of China’s services industries whilst targeting a reduction in industries suffering from overcapacity or inefficiencies – largely heavy industry associated with infrastructure and industrial production.”

From 2013, the services sector replaced the industrial sector as the biggest contributor to

China’s economic growth. According to data by HSBC, in Q2 2016, the services sector accounted for 51.9% of overall real GDP growth in China, compared with 40.7% for the industrial sector.

The economy obviously saw the benefits of the move. To begin with, the fast expansion in the services sector helped prevent GDP growth from sliding too fast. Between 2012 and 2015, the services sector has maintained robust growth of around 8.1% y-o-y, while output growth in the industrial sector decelerated from 8.2% y-o-y to 6.0%. Therefore, across the same time period, overall GDP growth fell by less than 1ppt (from 7.7% y-o-y to 6.9%), despite the sharp decline in the industrial sector.

According to China economist Chang Liu who works independently, the services sector has been able to maintain employment levels. “Despite slower GDP growth due to the underperforming industrial sector, China maintained healthy growth in jobs at 13m per year, all thanks to the services industry which is more labour intensive than manufacturing,” says Liu.

Though in the short run such a move did prevent a hard landing for China, from a long-term perspective a premature shift to services-sector led growth implies a huge efficiency loss. Jing Li, economist, HSBC, says, “The biggest source of productivity growth comes from the transition of labour from the agricultural sector to non-farm sectors. Therefore, the sector distribution of those migrant workers determines whether the economy is growing in the most efficient manner.” To this extent, this reshuffling towards the service industry means that a less productive sector is replacing the manufacturing sector as the main absorber of rural migrant workers.

An HSBC report states that between 2012 and 2015, the total number of migrant workers in the manufacturing sector declined by nearly seven million, compared with an increase of five million in the three biggest services sectors — wholesale and retail, residential services, transportation and logistics. Based on 2015 statistics, each worker in the manufacturing sector generated RMB45,000 more output than their counterpart in the three biggest services sectors.

Additionally, manufacturing industry is always on tenterhooks since it has to constantly upgrade itself in order to stay competitive and relevant. This improves the overall health of an economy — something very essential for a growing country.

“China still enjoys a high savings rate of nearly 50% of GDP. It is crucial that China does not pursue rebalancing towards consumption and thus lose the window of opportunity to catch up with more advanced economies. To avoid the middle-income trap, China needs to make more efficient investments and continue on the industrialisation path – this will be a challenge,” concludes Hongbin.

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