GRACosway Weekly Wrap Up: Treasurer urges calm amid escalating global tensions

9 August 2019

Highlights

The first Council of Australian Governments (COAG) meeting since the May federal election is taking place today in Cairns, with discussions set to focus on vocational education and training reform, reducing plastic waste and gas market reform.
The Prime Minister visited Townsville in Far North Queensland on Thursday where he committed funding to fight a land-destroying weed which has flourished following the February floods.
The PM hosted a US delegation visiting for the AUSMIN Summit, discussing shipping in the Persian Gulf and the security of the Asia-Pacific region.
The escalating US-China trade war saw $90 billion wiped from the Australian share market during the week, prompting Treasurer Josh Frydenberg to call for “cool heads to prevail”.
The Reserve Bank of Australia met this week and kept rates on hold. RBA Governor Philip Lowe admitted economic growth was “lower than earlier expected”, signaling that a further cut may take place before the end of the year.

Global issues dominated the agenda this week, with Prime Minister Scott Morrison hosting US Secretary of State Mike Pompeo at the weekend. Mr Pompeo – who was in Australia for the annual AUSMIN Summit in Sydney – urged the Government to join an international operation to protect shipping in the Persian Gulf. Defence Minister Linda Reynolds has confirmed the Government is considering the request, which comes after Iran captured foreign oil tankers in the Strait of Hormuz. Mr Pompeo also flagged US plans to locate mid-range missiles in the Asia-Pacific region, sparking suggestions they could be placed in northern Australia. This was, however, quickly ruled out by the Prime Minister. At a press conference on Monday, the PM reiterated the Government’s commitment to the Pacific Step Up Program and said Australia and the US are working together for an “independent sovereign Pacific”.

The escalating trade war between the US and China saw $90 billion wiped from the Australian share market over two days this week as the Australian dollar hit a 10-year low against the US dollar. In the latest chapter of the tit-for-tat trade war, China allowed the yuan to weaken against the American dollar in retaliation for new US tariffs, prompting US President Donald Trump to label China a “currency manipulator”. Treasurer Josh Frydenberg fronted up to multiple interviews, urging Australians not to overreact to the shifting markets, and reiterated the Government is “absolutely determined” to achieve a surplus next year. However, former Treasurer Peter Costello issued a strong warning that losses to superannuation funds will have a significant impact on the nation’s bottom line.

The Reserve Bank of Australia (RBA) has left the official cash rate on hold at the historic low of one per cent after two consecutive rate cuts in June and July. The RBA also trimmed its economic growth forecast from 2.75 to 2.5 per cent for 2019. In a statement released after the latest monthly meeting, RBA Governor Philip Lowe said it’s “reasonable to expect that an extended period of low interest rates will be required” in order to keep unemployment rates down and to meet the RBA’s inflation target. Mr Lowe will today appear in front of the House of Representatives Economics Committee to further expand on the RBA’s recent decisions. Ahead of the hearing, committee Chair Tim Wilson said it seemed as though Mr Lowe had “thrown up his hands and said he has exhausted the options of monetary policy”. Mr Wilson has also flagged he will question Mr Lowe about the potentially negative impact of low interest rates on retirees. The RBA’s latest Statement on Monetary Policy is due today.

The Government announced on Tuesday a comprehensive suite of gas market reform measures aimed at improving supply to the east coast market, reducing consumer power bills, and protecting domestic manufacturing jobs. The measures include an option to introduce a prospective national gas reservation scheme following consultation with state and territory governments. According to the announcement, the scheme’s establishment should coincide with the repeal of “unwarranted restrictions on gas developments” across different jurisdictions, and the Government will finalise consideration of options by February 2021.

Looking ahead, the Victorian, WA, ACT and NT Parliaments will all sit next week.