Morning Update

Travel Tuesday, 2024 growth target for Beijing remains unchanged, continued pressure on oil prices, tomorrow's budget sees mounting speculation, and outsourcing of munitions manufacturing to allied nations from the US.

Travel Tuesday: Australia

Australia has the longest fence in the world, it’s called the ‘dingo fence’, and it stretches an impressive 5,530 kilometers! This massive fence was built to keep dingoes (wild dogs) away from fertile land and livestock. Imagine a fence longer than some coastlines!

Population (2023) 26.6 million
GDP (2023) $1.35 trillion
GDP Per Capita (2023) $63,487
Annual Economic Growth 0.1%
National Animal Kangaroo
Major Export Iron ores

Chinese Growth Target

Beijing have kept their growth target unchanged at “around” 5% for 2024, as the world’s second largest economy continues to face severe headwinds.

Speaking to some 3,000 delegates at the National People’s Congress, Premier Li Qiang said, “The foundation for the continuous recovery and improvement of our country’s economy is still not solid, with insufficient demand, overcapacity in some industries, weak societal expectations and many lingering risks”.

The speech follows Chinese growth coming in at 5.2% over 2023, with the country beset by a precarious property sector, high levels of youth unemployment, and faltering demand.

On the topic of the labour market, Premier Li Qiang said that Beijing will target creating 12 million jobs in urban areas – roughly the same as last year. Presently, urban unemployment

currently stands at around 5.2%, down from an all-time high of 6.2% in February 2020 registered during the pandemic.

Urban and youth unemployment remain a particularly salient issue across China, with soft demand impacting jobs across the country. For example, in June youth unemployment in urban areas rose to a record high of 21.3%. For the next five months until December, the CCP stopped releasing this data, with the figure easing to 14.9% at the end of last year. With some 11.5 million graduates entering the labour market each year, Beijing face a gargantuan task.

Regarding Beijing’s fiscal plans, the CCP said that fiscal spending is expected to rise by 4%, down around 1.6 percentage points from last year’s target. This comes as military spending will rise by over 7% from last year.

Oil Prices Ease Despite OPEC+ Cuts

Oil prices continued to come under pressures during the course of yesterday’s session despite OPEC+ extends supply side cuts. WTI crude futures fell to below $78.5dpb – down from over $80dbp at the start of the month.

On Sunday, OPEC+ agreed to extend a voluntary cut in output of 2.2m barrels per day throughout Q2 2024, as the group considered dampened demand with monetary conditions likely being held higher for longer.

2p or Not 2p

Speculation continues to mount on how the Chancellor may utilise some of his ‘fiscal headroom’ during tomorrow’s budget. As we looked at yesterday, some Tory MPs are hoping that Jeremy Hunt will put a 2p cut to either National Insurance or Income Tax.

According to the Financial Times, a 1p cut to employee national insurance contributions will cost some £5bn a year while a 1p cut to the basic rate of income tax would cost some £7bn to the Treasury in foregone receipts. Given that the former would amount to a cut only for those in work, many argue that a cut to national insurance would be seen as more “pro-work”. Attention now turns to the release of the budget, set to start around 12:30 tomorrow.

Defence Manufacturing

The New York Times run an interesting piece this morning on the US outsourcing their munitions manufacturing to allied nations, with Australia being the nation that is likely to see the most benefit.

The article cites the backlog in America’s order book, with places like Taiwan facing order delays, whilst China doubles down on its own domestic production capacity. A solution is to offshore some of the manufacturing of more basic equipment, such as artilleryartilary sheel shells and, later this year, “guided multiple launch rocket systems”, of which Australia could end up making around 3,000 per year.

There are laws in the US that prevent these munitions being exported by the manufacturing country, which Australia is lobbying to get rid of, as they see themselves as there to “supplement, not supplant the American industrial base”. Australia are leaning in on their history of fighting alongside the US in every conflict since World War One.

The full story can be found here: Why More American Weapons Will Soon Be Made Outside America – The New York Times (nytimes.com)