The seven economic buzzwords you need to know in 2019
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The seven economic buzzwords you need to know in 2019

It’s that time of year when we get out the crystal ball and have a look at what’s in store for the economy in 2019.

The Australian economy begins this year in a somewhat delicate condition – not unlike many other New Year's revellers.

Also not dissimilar to partygoers, the economy stands under the cloud of a significant hangover – not from vodka, but debt.

Illustration: Matt Davidson

Illustration: Matt DavidsonCredit:

Having successfully escaped being dragged out to sea by the receding tide of Australia’s biggest mining boom, the Aussie economy now looks set to do battle in 2019 with the unwinding of our biggest property boom in history, and its consequent debt legacy.

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And if somebody could just turn down the sound on the international economy, which is adding a throbbing undertone into the mix, with a noisy trade war between China and the US, Brexit uncertainty and concerns about China’s own debt boom.

But the volume on the economic debate is only set to ramp up ahead of the May federal election, which will be fought on the key battleground of the economy.

So, to help you navigate the year ahead, I’ve assembled my annual list of economic buzzwords you need to know to survive another exciting year of economic news.

First on this year’s list: FONGO.

Ain’t heard of fongo? Ya drongo!

No worries, get set to hear plenty more about this acronym, which is the mirror opposite of FOMO – the fear of missing out – that gripped Australian property buyers for most of the past half decade.

FOMO fuels price booms. And its opposite number FONGO – fear of not getting out – has the capacity to accelerate the price bust.

Which brings us to the second buzz phrase: “negative wealth effect”. Christmas has had a rather negative effect on my wealth, but economists intend the phrase to mean something more specific.

When home values are dropping, economists debate the degree to which households will respond to falling valuations by curbing their spending. With consumer spending making up almost two-thirds of our economy, that’s a big deal.

But the jury’s out on the size of this effect.

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It’s not clear to what extent households believed that massive home price increases would last, or to what extent they saw things as “too good to be true”. If households didn’t mentally "bank" the idea that prices had gained so far, perhaps they won’t be as troubled when prices settle.

How consumers ultimately respond to the unwinding property boom is the key question hanging over the economy as we enter 2019.

The second biggest question is when will tepid wages growth come back to life. And here, you need to understand a third buzzword: the NAIRU – not to be confused with the small island nation. Believe it or not, we are all living at NAIRU now. And, believe it or not, that’s a good thing.

More specifically, we live in an economy where our jobless rate has fallen to the rate below which economists expect wages and prices growth to accelerate – the "non-accelerating inflation rate of unemployment".

Australia’s job market enters 2019 in rude health. As the percentage of jobless people dwindles, this should start to embolden workers to demand bigger pay rises – more confident they can’t be replaced – and employers should become more willing to grant them.

That’s a big "should". Overseas experience has shown that, in fact, jobless rates need to fall well below the NAIRU before wage rises kick in. Still, it can never hurt to ask.

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Offshore, get ready to hear more about a fourth buzzword: the “RRR”. That’s the "reserve requirement ratio" set by the Chinese central bank, dictating the amount of capital Chinese banks must hold in reserve. Last year, this rate was cut, providing a cash injection to the Chinse economy, as authorities looked to head off the potential negative effects of a trade war with the US.

Speaking of the US, get set to hear more about the "inverted yield curve" – which is not, as it sounds, a fancy yoga pose, but a portent of potential doom in the US economy. Yield curves refer to the line graph you can draw showing the rate of interest or “yield” on government bonds on the Y axis and the bond maturation date on the X axis. Usually, government bonds must pay out higher rates of interest into the future, to compensate investors for future growth.

When the yield curve inverts, that means lower rates of growth ahead – or even, recession. Significantly, just before Christmas, the yield curve on some bonds in the US did invert. Watch this space.

Back at home, get ready to hear a phrase we've not heard much of for more than a decade: "a budget surplus". In case you need a refresher, that’s when government revenue exceeds outgoings. Indeed, it’s when governments can stop going cap in hand to investors to borrow to fund the ordinary business of government. And even, when previous debts can begin to be repaid.

But you should wait to see it, before you believe it. The Coalition's April 2 budget will forecast a slim surplus for the coming 2019-20 financial year. We won’t know for sure if it is actually achieved until we get the final budget outcome in late 2020. Given international winds, it wouldn’t take much to blow us off course.

And there's an election in the offing, so get ready for my final buzzword of 2019: “porkbarelling”. I hope you didn’t overindulge in Christmas ham, because 2019 looks set to be the year that brings home the bacon, as Keating once boasted in 1988.

Only this time it’ll be stuffed into barrels, in the form of grants and cash giveaways, helicopter-dropped into marginal electorates to encourage votes.

I've decided to keep a tally. It's our own tax money they're bribing us with, after all.

Let the 2019 economic games begin.

Jessica Irvine is a senior economics writer with The Sydney Morning Herald.

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