June 2018

Australian Economy Crane over construction workers at sunny construction site
Photo: Caiaimage/Trevor Adeline – Getty Images

Private Non-mining Investment in Australia

Michelle van der Merwe, Lynne Cockerell, Mark Chambers and Jarkko Jääskelä

While mining investment has risen in importance over recent decades, the non-mining investment share of output has fallen. This article explores some of the factors that have contributed to the downward trend in the non-mining investment share over time. The article finds that the future non-mining investment share could be around 1–2 percentage points lower on average than it was in the two decades before the financial crisis.

Investment, Capex, Manufacturing, Household Services, Business Services, Technology
Australian Economy University graduates, mortar board hats
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Labour Market Outcomes for Younger People

Zoya Dhillon and Natasha Cassidy

Monitoring developments in the labour market for younger people is important, because they make up a large share of unemployment in the economy, and because early-career labour market outcomes can affect future outcomes. This article outlines the demand and supply factors that have affected 15–24 year old workers in Australia. In particular, we analyse the factors affecting their participation in the labour force, such as increased education attainment. We also show how younger workers are more adversely affected than the rest of the population when economic conditions slow. Over the past decade, increases in the unemployment and underemployment rates for younger people have been over twice as large as for the overall labour market. The share of 20–24 year olds that have become disengaged from either study or work has also increased.

Employment, Wages
Global Economy Young woman wearing blue trousers with an orange suit jacket, in the foreground we can see the back of two people, a man and a woman.
Photo: sturti – Getty Images

Indicators of Labour Market Conditions in Advanced Economies

Alexandra Baker and Meika Ball

While the unemployment rate is the most widely used indicator of labour market slack, there are many other measures. This article reports on what a broad range of indicators say about conditions in the labour markets of advanced economies. We summarise the various indicators using a standard statistical technique. The summary measures show labour markets in most advanced economies are tight, although in some cases not as tight as implied by the unemployment rate. The Australian labour market has spare capacity remaining, consistent with readings from the unemployment rate. The summary measures provide additional information about wage developments for most advanced economies, above and beyond the unemployment rate, but do not fully account for the weak wages growth of recent years.

Employment, wages
Global Economy Mumbai, MH, India
Photo: Puneet Vikram Singh, Nature and Concept photographer – Getty Images

Economic Trends in India

June Ma and Ivan Roberts

The Indian economy has experienced a notable turnaround in recent years. Growth has rebounded, inflation has moderated, and the budget and trade deficits have narrowed. The Indian Government has also initiated policies and reforms aimed at encouraging investment, strengthening productivity and ensuring fiscal sustainability. Stronger growth in domestic demand has led to a recovery in India's imports, including from Australia. The recent volatility in foreign exchange markets and the recovery in oil prices pose upside risks to inflation and the current account deficit. However, India's strong long-term potential for growth, driven by demographics, urbanisation and productivity-enhancing reforms, suggests there is scope for trade between Australia and India to expand further in coming years.

India, trade, macroeconomic
Australian Economy Image showing transmission of data.
Photo: spainter_vfx – Getty Images

Banking Fees in Australia

Emily Perry and Christian Maruthiah

The Reserve Bank has conducted a survey on bank fees each year since 1997. The most recent survey suggests that banks' fee income from both households and businesses rose in 2017, due to a combination of growth in the volume of services for which fees are charged and higher unit fees on some products. Deposit fee income continued to decline relative to the value of outstanding deposits, while lending fee income as a share of assets was steady. Greater use of electronic payment methods continued to support strong growth in merchant service fee income

Banks, technology, rba survey
Global Economy Image of a map with a hand in the foreground holding Fijian currency
Photo: DNY59, chameleonseye – Getty Images

Developments in Correspondent Banking in the South Pacific

Lindsay Boulton and Brett Winton

This article examines the withdrawal of global financial institutions from providing correspondent banking services to the South Pacific region and the implications for remittances. Disruptions to the flow of remittances, an important source of income to many low-income island nations, could limit local consumption and adversely affect economic stability. So far, however, remittances to the South Pacific region have continued to increase.

Banking, services sector
Global Economy Shanghai Skyline
Photo: Dong Wenjie – Getty Images

Trends in China's Capital Account

Madeleine McCowage

Chinese policymakers' approach to liberalising capital flows has been gradual and controlled over time, as the authorities have sought to mitigate volatility in the Chinese renminbi (RMB) and private capital flows. Direct investment flows out of China have grown, become more diversified and have increasingly been accounted for by private investors. Banking-related flows have proved more volatile and are correlated with expectations for the RMB.

China, macroeconomic, investment
Financial Markets An image that represents a network and linkages between players in the OTC derivatives market
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The Australian OTC Derivatives Market: Insights from New Trade Repository Data

Duke Cole and Daniel Ji

Over-the-counter (OTC) derivatives have played a significant role in episodes of financial stress, including the global financial crisis. However, because these derivatives are not traded on exchanges, detailed information about them has not generally been available. Newly available trade-level data coming from trade repositories can now facilitate a closer look at these markets than was possible before. This article focusses on OTC interest rate derivatives. Central counterparties (CCPs) have become much more important, in large part because of G20 reforms to increase the central clearing of OTC derivatives. Nonetheless, Australian banks still have significant exposures to other counterparties, including foreign banks. In aggregate, Australian banks hold a variety of offsetting single-currency interest rate derivatives, and use cross-currency swaps to hedge exchange rate risks.

derivatives, interest rates, financial instruments, regulations, central clearing

The graphs in this issue of the Bulletin were generated using Mathematica.

ISSN 1837-7211 (Online)