Exclusively from Gerard Minack.
Australia remains stuck in a macro rut as anaemic investment spending is stretched by a fast growing population. The result is sluggish capital-to-labour growth and – remarkably – falling labour productivity. The implication is that real wages cannot rise without creating inflation pressures. Macro stagnation has gone together with falling corporate profits: ASX200 forecast EPS has fallen for three years and is 15% below its October 2022 peak. Over the same period the index is up 40%. The market is forecast to deliver low single digit EPS on a near-record valuation. Not a great buy.
Population growth without matching investment leads to crowded roads, schools and hospitals; housing shortages; and less productive workers. Exhibit 1 shows the investment spending required to grow Australia’s capital stock in line with its population growth. Australia should have invested around 5% of GDP per year to keep pace with the fast population growth of the past 20 years.
