December 14, 2025 • 12 mins
Three rate cuts, a surprise inflation flare-up, house prices roaring and the labour market finally losing a bit of steam – 2025 has been a strange year for the economy. In this special year-in-review, Michael Thompson is joined by economist Stephen Koukoulas to unpack what happened with rates, government spending, jobs and productivity, and whether the next move is a rate hike.
Fear & Greed Q+A: Join Sean Aylmer & Michael Thompson and the team as they answer questions on business, investing, economics, politics and more. If you have your own question, get in touch via our website, LinkedIn, Instagram or Facebook!
Join our free daily newsletter here.
Find out more: https://fearandgreed.com.au/
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson and every Monday morning we're joined by
economist Stephen Coucoulis to look at the week ahead. You'll
find him at the kook dot com. That's th ko
uk dot com and on ex using the handle the kuk. Stephen,
good morning.
Speaker 2 (00:25):
A good morning, Michael.
Speaker 1 (00:27):
A little bit different today's episode because this is the
last episode of the week Ahead for the year and
it coincides with a fairly quiet week for the economy.
And next week it's Christmas, of course, and we moved
to a summer format for a few weeks, so there
is no better time I think to take a look
back at the year that was in economics. I think,
(00:52):
if you're up for it, we'll start with the interest rates,
because we began the year right with a rate cut
in February. We had three rate cuts in total. Now
here we are at the end of the year talking
about interest rate hikes, as we saw last week when
the Reserve Bank Board met. How did we get from
there to here? Stephen?
Speaker 2 (01:10):
Yeah, Look, I think on the interest rate question. It
was fairly clear that the direction in rates during the
course of this year. When we looked back to December
January twelve months ago, Yeah, the rate cutting scenario was live.
It was a matter of how many when and all
those sorts of things, and so we had three summers.
Thought there'd be more. A few of the people thought
(01:31):
there'd be a few less. So, but at the end
of the day, Yeah, the rate cutting cycle was delivered,
and the reasons were fairly clear. Even though the economy
improved a little bit. Yeah, bottom line economic growth was
picking up through the course of the year, it was
still not a stellar or strong year for the economy.
Inflation until very recently had come down, and that allowed
(01:55):
or facilitated the RBA in cutting into strates. The unemployment
rate crept up a little bit through the year, and
that was another reasons why they cut, but it didn't
go up a huge amount, which is why some of
us who thought there'd be more than the three rate
cuts were wrong. That I thought the unemployment would be
skewing towards four and three quarters even five percent, and
obviously we didn't get there, And I think that explains
(02:16):
why we've had the three cuts, no more, no less.
Economy again a bit like my old school reports, doing okay,
but could be doing better, could be better. And so
we had those rate cuts delivered, but no more than
the three.
Speaker 1 (02:32):
It's a bit unusual, isn't it to have such a
short rate cutting cycle here, right? Because this is a
three interest rate cuts is quite narrow and it's it's
turned quite quickly, hasn't it.
Speaker 2 (02:47):
Let's not conclude that the rate cutting cycle is over
despite this market pricing. So I'm just going to take
a little bit of a caveat there, Michael. I'm okay,
I'm not quite convinced that it's over despite the news
and the market pricing. Of course, never fight the markets,
or maybe you do fight the markets. I'm not sure.
But but but, and this is a critical issue about
where the economy is at. As an I A lerned
to you know, we haven't finished the year with the
(03:09):
economy strong, and in fact, that inflation dilemma that's popped
up in the last few months, and I think we've
discussed this in recent weeks. It was driven by things
that may yet prove to be transitory. Dare I say it? Yeah,
we've got to get another quarter or two of data
to confirm that. But as the Governor, Michelle Bullock said
(03:30):
last week at her press conference when ginnounced rates on hold,
they're a little unsure. There was a bank a little
unsure about whether that little lift in inflation that we've seen,
and we have seen it was due to these temporary factors.
So the unwinding of the energy rebate for electricity, the
unwinding of some childcare subsidies, you know what we call them,
(03:50):
administered prices on excise on those things tobacco, petrol, and alcohol,
the things that are unlikely to be continue dude at
such a pace in coming quarters. So if we were
to see the great cutting cycle turned into a rate
hiking cycle next year, it would be a very short
cycle in terms of duration and in terms of magnitude.
(04:13):
Seventy five points. That's not a rate hike. This is
a rate hikers. Paul Hogan might say.
Speaker 1 (04:19):
I want to ask you about government spending, right and
the role that that has played this year, because the
government spending has been quite significant, and even if we
look at the wages bill for the public sector hit
a record this year as well, private sector investment has
(04:41):
been steady, very steady, starting to pick up again a
little bit. Are we seeing that transition that the Treasurer
wanted from the government really driving the economy moving now
towards business and business doing if not the lion's share,
but a greater share.
Speaker 2 (04:58):
That transitioning, as you alluded to, I think is happening. Gosh,
like all economs, I want to see more data from
the national accounts. It just came out what was that
two weeks ago? Now we saw the fact that private
demand was picking up, and in fact, if we look
at total public demand that is, state, local, and federal
(05:19):
consumption and investment, it only agrew by about two and
a half percent in the year. And that was the
week take out the pandemic for a second. That was
the weakest increase, the slowest increase in public demand since
twenty seventeen, so an eight year low. So again, arguably
it's still a little too high. And if what we're
(05:40):
hearing from Treasurer Charmers and Finance Minister Katie Gallaha that
their budget in May is going to be sort of
trimming a bit of spending here and snipping a little
few bits off there, we may see public demand being
a little bit weaker still. Certainly the state governments appear
to be also in a position where they want to
repair their So maybe, just maybe we're getting to that
(06:03):
point where where public demand as a contributed to growth,
and it has been powerful. Yes, you're spot on jobs,
on activity, on infrastructure investment, it's been very strong the
last couple of years. Maybe we're just going to have
a period now where we're in for moderate growth only
and some of the public sector cuts or slow downs.
(06:23):
If we've got that in spending, we'll actually have a
material impact on bottom line economic activity.
Speaker 1 (06:28):
And I know this is a year in review and
not really the week ahead, but as far as the
weak ahead goes, we might get a bit of an
insight into that this week with my IFO the Mediear
Economic and Physical Outlook.
Speaker 2 (06:38):
Yes, I think it's due this week at the time recording,
I haven't heard from the Treasure's Office when it's going
to be released. It's one of those ones where they
just sort of release it when they're ready.
Speaker 1 (06:47):
However, always very mysterious, isn't it's a little bit of
mystery to government, which is not.
Speaker 2 (06:53):
Maybe they'll put it out when there's some other scandal.
Dare I say it to sort of push it aside.
Speaker 1 (07:00):
That's very cynical of you, Steve.
Speaker 2 (07:01):
Look, I am cynical. I'm happy to admit it. But
the look. The issue on the fiscal outlook is really
updating the numbers, so not just the revised forecast, which
of course are critical to how much revenue the government
collects and how much they spend in the economy, but
any decisions that have been taken as well, so whether
there's a few decisions on bits and bobs that have occurred,
(07:23):
some foreign aid being paid over to Ukraine, amongst other
things that just spring to mind quickly, it'll be an
updated on the budget bottom line, and that will be
a really important benchmark, if you like, for where this
public sector activity is actually going. So I'm going to
have a look at it and try to analyze not
just the budget bottom line is a definite going to
(07:43):
be your twenty twenty five to thirty thirty five billion,
important as that is, it's sort of what's its effect
on the macro economy.
Speaker 1 (07:51):
In terms of our year and review. Let's talk about jobs.
You did mention this briefly before, but the labor force
data came out last week eployment rate at four point
three percent. Start of the year, it was four point
one percent. If you just looked at those two numbers
right in isolation, it's not a huge change behind those.
(08:11):
But what's the story behind the scenes and how has
it played out for business? Because this is really they
bear the brunt of a tight labor market.
Speaker 2 (08:23):
They do, and either in terms of the skilled shortage
so they can't get the talent and the workers that
they need to expand their business, or if they do,
they've got to pay up. They've got to pay higher wages,
which of course they tend to pass on in higher
cost which is higher inflation, which is hasn't happened, thank goodness.
But yes, you're quite right, the labor market's been very
well behaved, including in the data last week. Now we
(08:44):
look if we look at the unployted rate, yes it's
barely budge. It's up about a quarter of a percentage
point over the last year. Not a huge move, but
not surprising when we consider the fact that the economy
has been muddling along as we were saying moment ago.
Within that and this is always the issue with labor
force data and other data that you can analyze till
(09:08):
the cows come home. But we've got this situation where
the monthly rate of employment growth is slowing. Well. Last
month we saw the minus twenty one thousand, and if
we put a trend line through that, we're seeing that
the monthly average increase is only about five thousand a
month now, whereas at the start of the year we're
at twenty five to thirty thousand a month. So the
(09:28):
rate of job creations slowing, full time employments weakening, part
time employments hanging up there. So that's sort of supporting
the numbers a little bit. But the labor market is
still again, it's in decent shape. Four point three percent
unemployment rate, we'll take that nine times out of ten,
but it's still got this direction of moving hoigh. And
again last week we saw a number of these job
(09:50):
vacancies and job advertisement series tracking a little bit lower,
and that is a really good forward indicator on future
demand for jobs and the future unemploy So I'm just
sitting here again getting back to the interest rate question.
I'm not yet convinced that we've seen the peak in
the unemployment rate, and if we were in the months
ahead to see it tick up to that four and
a half. Heaven forbid anything more than that. Then that
(10:12):
rate cut all of a sudden, I say, it goes
onto the agenda, but the rate hike certainly gets off
the agenda. Put it that way.
Speaker 1 (10:19):
All right, we are pretty much out of time. I've
got a couple of things I want to mention to you,
but I want you to tell me how you would
describe twenty twenty five for these in just one sentence.
All right, okay, house prices.
Speaker 2 (10:31):
Incredibly strong, buoyant and accelerating.
Speaker 1 (10:35):
Through the year, Household spending.
Speaker 2 (10:38):
Encouragingly moving higher as householders have had a positive cash
flow from rate cuts, wage increases, and a wealth effect
from the fact that those of us who are lucky
enough to own a house are feeling richer.
Speaker 1 (10:53):
And this one might be hard to do in just
one sentence, but productivity.
Speaker 2 (10:58):
It's easy to do. In a word, still ordinary, but
with a hint, just a hint of a turning point
a little bit higher. And if I can have a
second sentence, please go for it. It is what we
saw with the weaker or softer labor force numbers, and
with GDP picking up. By definition, that will be translated
(11:19):
into higher productivity. So maybe we've just got through that
period where we had rotten productivity. And okay, we need
more than just six months or twelve months of higher
productivity to be to be doing happy dance down the street.
But maybe this is the turning point.
Speaker 1 (11:35):
It has been a very big twelve months. Thank you
very much for this year. Enjoy the break, Stephen, I'll.
Speaker 2 (11:40):
Enjoy it and the seasons. Greetings Michael, to all the
Fear and Greed team and to everybody who listens in
every week.
Speaker 1 (11:46):
That was economist Stephen Cook cool Us, better known as
the Kirk. It can find him at the kouk dot
com and follow him on excusing the handle of the kuk.
I'm Michael Thompson and this is Fear and Greed Q
and a
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson and every Monday morning we're joined by
economist Stephen Coucoulis to look at the week ahead. You'll
find him at the kook dot com. That's th ko
uk dot com and on ex using the handle the kuk. Stephen,
good morning.
Speaker 2 (00:25):
A good morning, Michael.
Speaker 1 (00:27):
A little bit different today's episode because this is the
last episode of the week Ahead for the year and
it coincides with a fairly quiet week for the economy.
And next week it's Christmas, of course, and we moved
to a summer format for a few weeks, so there
is no better time I think to take a look
back at the year that was in economics. I think,
(00:52):
if you're up for it, we'll start with the interest rates,
because we began the year right with a rate cut
in February. We had three rate cuts in total. Now
here we are at the end of the year talking
about interest rate hikes, as we saw last week when
the Reserve Bank Board met. How did we get from
there to here? Stephen?
Speaker 2 (01:10):
Yeah, Look, I think on the interest rate question. It
was fairly clear that the direction in rates during the
course of this year. When we looked back to December
January twelve months ago, Yeah, the rate cutting scenario was live.
It was a matter of how many when and all
those sorts of things, and so we had three summers.
Thought there'd be more. A few of the people thought
(01:31):
there'd be a few less. So, but at the end
of the day, Yeah, the rate cutting cycle was delivered,
and the reasons were fairly clear. Even though the economy
improved a little bit. Yeah, bottom line economic growth was
picking up through the course of the year, it was
still not a stellar or strong year for the economy.
Inflation until very recently had come down, and that allowed
(01:55):
or facilitated the RBA in cutting into strates. The unemployment
rate crept up a little bit through the year, and
that was another reasons why they cut, but it didn't
go up a huge amount, which is why some of
us who thought there'd be more than the three rate
cuts were wrong. That I thought the unemployment would be
skewing towards four and three quarters even five percent, and
obviously we didn't get there, And I think that explains
(02:16):
why we've had the three cuts, no more, no less.
Economy again a bit like my old school reports, doing okay,
but could be doing better, could be better. And so
we had those rate cuts delivered, but no more than
the three.
Speaker 1 (02:32):
It's a bit unusual, isn't it to have such a
short rate cutting cycle here, right? Because this is a
three interest rate cuts is quite narrow and it's it's
turned quite quickly, hasn't it.
Speaker 2 (02:47):
Let's not conclude that the rate cutting cycle is over
despite this market pricing. So I'm just going to take
a little bit of a caveat there, Michael. I'm okay,
I'm not quite convinced that it's over despite the news
and the market pricing. Of course, never fight the markets,
or maybe you do fight the markets. I'm not sure.
But but but, and this is a critical issue about
where the economy is at. As an I A lerned
to you know, we haven't finished the year with the
(03:09):
economy strong, and in fact, that inflation dilemma that's popped
up in the last few months, and I think we've
discussed this in recent weeks. It was driven by things
that may yet prove to be transitory. Dare I say it? Yeah,
we've got to get another quarter or two of data
to confirm that. But as the Governor, Michelle Bullock said
(03:30):
last week at her press conference when ginnounced rates on hold,
they're a little unsure. There was a bank a little
unsure about whether that little lift in inflation that we've seen,
and we have seen it was due to these temporary factors.
So the unwinding of the energy rebate for electricity, the
unwinding of some childcare subsidies, you know what we call them,
(03:50):
administered prices on excise on those things tobacco, petrol, and alcohol,
the things that are unlikely to be continue dude at
such a pace in coming quarters. So if we were
to see the great cutting cycle turned into a rate
hiking cycle next year, it would be a very short
cycle in terms of duration and in terms of magnitude.
(04:13):
Seventy five points. That's not a rate hike. This is
a rate hikers. Paul Hogan might say.
Speaker 1 (04:19):
I want to ask you about government spending, right and
the role that that has played this year, because the
government spending has been quite significant, and even if we
look at the wages bill for the public sector hit
a record this year as well, private sector investment has
(04:41):
been steady, very steady, starting to pick up again a
little bit. Are we seeing that transition that the Treasurer
wanted from the government really driving the economy moving now
towards business and business doing if not the lion's share,
but a greater share.
Speaker 2 (04:58):
That transitioning, as you alluded to, I think is happening. Gosh,
like all economs, I want to see more data from
the national accounts. It just came out what was that
two weeks ago? Now we saw the fact that private
demand was picking up, and in fact, if we look
at total public demand that is, state, local, and federal
(05:19):
consumption and investment, it only agrew by about two and
a half percent in the year. And that was the
week take out the pandemic for a second. That was
the weakest increase, the slowest increase in public demand since
twenty seventeen, so an eight year low. So again, arguably
it's still a little too high. And if what we're
(05:40):
hearing from Treasurer Charmers and Finance Minister Katie Gallaha that
their budget in May is going to be sort of
trimming a bit of spending here and snipping a little
few bits off there, we may see public demand being
a little bit weaker still. Certainly the state governments appear
to be also in a position where they want to
repair their So maybe, just maybe we're getting to that
(06:03):
point where where public demand as a contributed to growth,
and it has been powerful. Yes, you're spot on jobs,
on activity, on infrastructure investment, it's been very strong the
last couple of years. Maybe we're just going to have
a period now where we're in for moderate growth only
and some of the public sector cuts or slow downs.
(06:23):
If we've got that in spending, we'll actually have a
material impact on bottom line economic activity.
Speaker 1 (06:28):
And I know this is a year in review and
not really the week ahead, but as far as the
weak ahead goes, we might get a bit of an
insight into that this week with my IFO the Mediear
Economic and Physical Outlook.
Speaker 2 (06:38):
Yes, I think it's due this week at the time recording,
I haven't heard from the Treasure's Office when it's going
to be released. It's one of those ones where they
just sort of release it when they're ready.
Speaker 1 (06:47):
However, always very mysterious, isn't it's a little bit of
mystery to government, which is not.
Speaker 2 (06:53):
Maybe they'll put it out when there's some other scandal.
Dare I say it to sort of push it aside.
Speaker 1 (07:00):
That's very cynical of you, Steve.
Speaker 2 (07:01):
Look, I am cynical. I'm happy to admit it. But
the look. The issue on the fiscal outlook is really
updating the numbers, so not just the revised forecast, which
of course are critical to how much revenue the government
collects and how much they spend in the economy, but
any decisions that have been taken as well, so whether
there's a few decisions on bits and bobs that have occurred,
(07:23):
some foreign aid being paid over to Ukraine, amongst other
things that just spring to mind quickly, it'll be an
updated on the budget bottom line, and that will be
a really important benchmark, if you like, for where this
public sector activity is actually going. So I'm going to
have a look at it and try to analyze not
just the budget bottom line is a definite going to
(07:43):
be your twenty twenty five to thirty thirty five billion,
important as that is, it's sort of what's its effect
on the macro economy.
Speaker 1 (07:51):
In terms of our year and review. Let's talk about jobs.
You did mention this briefly before, but the labor force
data came out last week eployment rate at four point
three percent. Start of the year, it was four point
one percent. If you just looked at those two numbers
right in isolation, it's not a huge change behind those.
(08:11):
But what's the story behind the scenes and how has
it played out for business? Because this is really they
bear the brunt of a tight labor market.
Speaker 2 (08:23):
They do, and either in terms of the skilled shortage
so they can't get the talent and the workers that
they need to expand their business, or if they do,
they've got to pay up. They've got to pay higher wages,
which of course they tend to pass on in higher
cost which is higher inflation, which is hasn't happened, thank goodness.
But yes, you're quite right, the labor market's been very
well behaved, including in the data last week. Now we
(08:44):
look if we look at the unployted rate, yes it's
barely budge. It's up about a quarter of a percentage
point over the last year. Not a huge move, but
not surprising when we consider the fact that the economy
has been muddling along as we were saying moment ago.
Within that and this is always the issue with labor
force data and other data that you can analyze till
(09:08):
the cows come home. But we've got this situation where
the monthly rate of employment growth is slowing. Well. Last
month we saw the minus twenty one thousand, and if
we put a trend line through that, we're seeing that
the monthly average increase is only about five thousand a
month now, whereas at the start of the year we're
at twenty five to thirty thousand a month. So the
(09:28):
rate of job creations slowing, full time employments weakening, part
time employments hanging up there. So that's sort of supporting
the numbers a little bit. But the labor market is
still again, it's in decent shape. Four point three percent
unemployment rate, we'll take that nine times out of ten,
but it's still got this direction of moving hoigh. And
again last week we saw a number of these job
(09:50):
vacancies and job advertisement series tracking a little bit lower,
and that is a really good forward indicator on future
demand for jobs and the future unemploy So I'm just
sitting here again getting back to the interest rate question.
I'm not yet convinced that we've seen the peak in
the unemployment rate, and if we were in the months
ahead to see it tick up to that four and
a half. Heaven forbid anything more than that. Then that
(10:12):
rate cut all of a sudden, I say, it goes
onto the agenda, but the rate hike certainly gets off
the agenda. Put it that way.
Speaker 1 (10:19):
All right, we are pretty much out of time. I've
got a couple of things I want to mention to you,
but I want you to tell me how you would
describe twenty twenty five for these in just one sentence.
All right, okay, house prices.
Speaker 2 (10:31):
Incredibly strong, buoyant and accelerating.
Speaker 1 (10:35):
Through the year, Household spending.
Speaker 2 (10:38):
Encouragingly moving higher as householders have had a positive cash
flow from rate cuts, wage increases, and a wealth effect
from the fact that those of us who are lucky
enough to own a house are feeling richer.
Speaker 1 (10:53):
And this one might be hard to do in just
one sentence, but productivity.
Speaker 2 (10:58):
It's easy to do. In a word, still ordinary, but
with a hint, just a hint of a turning point
a little bit higher. And if I can have a
second sentence, please go for it. It is what we
saw with the weaker or softer labor force numbers, and
with GDP picking up. By definition, that will be translated
(11:19):
into higher productivity. So maybe we've just got through that
period where we had rotten productivity. And okay, we need
more than just six months or twelve months of higher
productivity to be to be doing happy dance down the street.
But maybe this is the turning point.
Speaker 1 (11:35):
It has been a very big twelve months. Thank you
very much for this year. Enjoy the break, Stephen, I'll.
Speaker 2 (11:40):
Enjoy it and the seasons. Greetings Michael, to all the
Fear and Greed team and to everybody who listens in
every week.
Speaker 1 (11:46):
That was economist Stephen Cook cool Us, better known as
the Kirk. It can find him at the kouk dot
com and follow him on excusing the handle of the kuk.
I'm Michael Thompson and this is Fear and Greed Q
and a
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Betrayal: Weekly
Betrayal Weekly is back for a brand new season. Every Thursday, Betrayal Weekly shares first-hand accounts of broken trust, shocking deceptions, and the trail of destruction they leave behind. Hosted by Andrea Gunning, this weekly ongoing series digs into real-life stories of betrayal and the aftermath. From stories of double lives to dark discoveries, these are cautionary tales and accounts of resilience against all odds. From the producers of the critically acclaimed Betrayal series, Betrayal Weekly drops new episodes every Thursday. Please join our Substack for additional exclusive content, curated book recommendations and community discussions. Sign up FREE by clicking this link Beyond Betrayal Substack. Join our community dedicated to truth, resilience and healing. Your voice matters! Be a part of our Betrayal journey on Substack. And make sure to check out Seasons 1-4 of Betrayal, along with Betrayal Weekly Season 1.