This is Business Now with Ross green Word.

Hi.

They're are welcome the Business Now on this Wednesday.

Thanks for your company.

I'm Ross Greenwood.

Coming up on the program, Australia's economic growth rate is faster than any time in the past two years, but is still slower than the government is spending.

It puts pressure on inflation therefore on funding the government spending.

We speak with the NAB Chief economist Sally old but Reserve Bank Governor Michelle Bullock warns if inflation takes off, we will raise rates.

By now.

Payload of companies have tanked on the stock market in the past couple of days and it's all due to fresh American investigations into the lead lending practices.

So all that and plenty more coming up on today's program.

A couple of other quick stories we think you should know about today.

One of those is in.

A statement that should shame some investment advisors and superannuation funds platforms.

The liquidator the Collapse First Guardian Master Fund today said it's six thousand or so investors are unlikely to receive any money back.

The liquidator FTI Consulting said of four hundred and forty six million dollars in the fund.

Just one point six million dollars has been recovered to date.

FTI says it's tracking bank accounts related to First Guardians responsible entity Falcon Capital, but these trails led to accounts in the Cayman Islands.

Among other places.

The allegation is that many of these transfers were fraudulent, which led to the collapse of that fund.

Just a quick one.

The CEO of the National Australia Bank, Andrew Irvan, has stood down as the chair of the peak banking body, the Australian Bankers Association.

The chair typically rotates every two years or so.

The CEO of the.

A and Z Bank, Nuno Martos, will step into that role.

Well, look, let's get across the markets with Edward Boyd.

Those GDP numbers they were the key today.

They really clearly had an impact.

On the markets.

But it was a bit all over the place after.

That, it sure so, I mean, just look at this.

It was kind of a crazy day of trading.

The market was really falling before the figures were released, and then as soon as the numbers came out at eleven thirty, they jumped ahead, gaining forty points.

Here in a matter of minutes.

You can see the spike on the.

Screen now, maybe due to some investors thinking that the weaker than expected GDP numbers might force the RBA to cut rates, But soon you can see here those thoughts came to an end.

They were raised as investors took a closer look at that GDP data.

The second quarter was actually revised up by the ABS.

The numbers show our economies actually approaching full capacity, so there was a bit of a selloff in the afternoon.

Utilities, property rets and energy stocks for the top performers.

Healthcare, tech companies and industrials fell away.

The market, though, did another blip at the end of the day.

We'd day of trading.

It finished up basically ero point two of a percent.

His The look as well at the Aussie dollar reacting to the GDP figures.

Ozzie's been rising this whole week.

On Monday it was at about sixty five point four odd US sense.

Today it lifted again.

It's now sixty five point eight cents.

It's at a three week high for the Aussie dollar and the one year government bond yield.

It's been rising this week as well.

On Monday it was at about three point seventy five percent.

It's currently up a bit higher than that now at three point eight two percent, so investors clearly still pretty worried here about interest rates.

After a strong day trading yesterday, coal miners were some of the best performers again today, Software technology company Objective Corp.

It surged.

There was no announcement from them.

AGL was the top utility.

An online retailer Temple and Webster.

It's been bouncing around a bit recently.

Today it was up about one and a half percent.

The other sector that did really well was uranium producers.

It's partially due to the United States government continuing with its plan to build a series of nuclear reactors to power artificial intelligence data centers, which are going to be a huge drain on America's energy grid in the future.

Overnight, the US Department of Energy said it's going to provide about eight hundred billion US dollars to support the development of small modular reactors in Tennessee.

The other thing supporting the market today is the listing of a new Chinese state owned company called China National Uranium.

It's up about three hundred and forty eight percent in trading.

As we speak on the shen Zen Exchange, so more positivity there for uranium.

It lifted the whole sect.

You can see Palatin up five percent, Bannerman up about six point eight.

The best of the bunch though, was Elevate Uranium, which is a very small cap stock up to thirty cents per share.

Data networking business Megaport was one of the worst performing tech stocks today, buying our pay lata company Block got hammered after the US launched that inquiry and to buying our pay lata companies to ensure they're complying with American Consumer Lord.

We saw Zip be sold off basically ten percent yesterday, so Zip down and now Block West African Focus.

Gold miner Percy Is dropped after announcing it's lobbed a one point six billion dollar takeover bid for the gold miner Predictive Discovery, which would be paid using shares.

PERSEUS already owned about eighteen percent of that business, and the critical mineral stock Iperian xcot crunched along with gold miner Emerald Resources, which has projects in Cambodi and Australia.

Emerald was off by a bit under two percent and Ross's that's market that is a cracking.

Job, thank you.

Yes.

Indeed, let's turn to the September quarter economic growth numbers out today.

The quarterly rate of zero point four percent was lower than economists forecast.

The annual rate of two point one percent, though stronger than the two percent that was revised as n said in the June quarter, is certainly lower than it was expected to be.

The good news is that private investment grew two point nine percent, which contributed about half a percentage point to that growth.

This is the highest quarterly private investment growth seen since the March quarter of twenty twenty one.

Was largely driven by data centers and artificial intelligence investment.

But in the same period public sector growth the government that was up by three percent after three consecutive quarterly falls.

Renewable energy and water projects drove that growth.

It remains though, that the economy they're growing faster, continues to grow more slowly than the government is spending money two point one percent for the economy two point six percent for government spending.

So private consumption picked up.

That's a reflection of lower interest rates of wage rises this year.

Those also contributed to a higher household savings ratio.

Productivity welcome improvement in the latest quarter, but not enough to drive our economy faster.

The problem now, if the economy does grow faster but without more productivity growth, inflation is likely to increase.

Sky News chief ancher Kieran Gilbert spoke with the Treasurer and Jim Chalmers earlier and just asked him if he's worried that the higher inflation could ultimately lead to a wage price spiral.

I don't think the objective observers of our economy feel that that is in prospect.

What we've been able to achieve over the course of the last three and a half years or so is we've seen inflation come downs substantially from what we inherited at the same time as we've got wages growing again.

We've had two years now of real wages growth.

That's a good thing.

You're seeing the national accounts today that the wages measure is pretty strong and again driven by a private sector wage outcomes, and that's helping to drive a recovery in per person incomes as well in our economy.

But you get a real sense that the Reserve Bank government Michelle Bullog is wearing and said any persistence of inflation will result in swift action to raise interustrates.

If it's a lot of us temporary, we can look through it and we will start to see the trend back down towards the midpoint.

Again.

If it's not and it's more persistent, and we'll get more information on this in the next couple of months, then that's suggesting it to us that the demand pressures are persisting and that might have implications for the future path manage policy will have implications for the future park.

Early today I spoke with the National Australian Banks Chief Economy Sally Older, the bank's head office in Sydney.

Sally Old always good to chat to you.

I just want to know, is the Australian economy growing fast enough right now?

Yes, Ross, I think that's the answer.

We're basically at trend growth.

So we saw the economy grow four tenths of a percent in the third quarter of this year, the annual rate a little bit above two percent, which basically is bang on where the rbac's trend.

Growth, so you know, we're effectively there.

That means we're pretty much using up all the capacity in the economy and there's not.

A whole lot of scope to push.

The run rate of the economy much higher than the low twos.

I want to ask you about that because the long term average growth rate of Australia's economy is three percent, not two percent.

So what happens if we try and push the economy more towards that long term average of Australia's economic growth.

No, you're exactly right.

So we're used to sort of growth in Australia of around three, but like I said, where we're sort of stuck at two and that's largely a function of softer productivity growth, which we know has been quite an important topic of debate and consideration for the government and policymakers.

If we try to get back to three, effectively, we're going to have demand growth outstripping the supply capacity of the economy.

And that means basically too much demand chasing too few workers or too few sort of factories, and prices will go up.

So prices go up, inflation goes up.

The Reserve Bank then has fewer options, doesn't.

It correct, So in that sort of environment with accelerating inflation, and remember this is a central bank where already they've been surprised on the upside by inflation in the third quarter that was stronger than they had anticipated, at least in their forecast.

So the starting point for this is not as good as it possibly could be.

And I think that probably tells you that the RBA has a pretty limited tolerance for any signs that the economy might be starting to push beyond those capacity constraints.

How much of this capacity constraint is about government investment, government spending, because it would seem as though many people believe that the government, the federal government, state governments, have crowded out the private sector.

Yeah, that's right, and that's been you know, I think one of the narratives out there about the economy.

But actually, when we look at not just the third quarter the data that we got today, but when we look at I guess what's happened really through the course of twenty twenty five, what you actually see is that growth is increasingly been driven by the private sector, unless of the public sector.

So that narrative, you know, which was popular and probably correct in parts of twenty three and twenty four, I think is no longer the right one for today.

And we could see really clearly today that when you look at the domestic economy, it's really the private sector that's doing pretty much two thirds to three quarters of the heavy lifting.

So this is a nice transition, and this is what we want.

You know, we wanted the public sectors to support the economy when rates were going up and the private sector, you know, was struggling under the burden of higher inflation, higher interest rates.

And now that both of those constraints have been eased somewhat, rates are lower, inflations come down, we're starting to see the private sector pick up, and that's actually a good thing.

Okay, So then you would all concern with the inflation rate, particularly in the past quarter, being higher than expected that Australia has the prospect in the future of a wages price is spiral.

That's almost the worst scenario for an economy such as Australia.

Yeah, that's exactly right.

So not worried about a wages price is spiral.

I think the Reserve Bank, if it needs to act, is going to act well in advance of some.

In other words, that means raising interest rates.

Correct, that's the they have one lever its rates up or rates down or rates unchanged.

And if they're facing into an environment where it looks like the inflationary pulse of the economy is accelerating and, like we said, from not so great levels as the starting point, then I think they will be quite sensitive to that.

Okay, So but you can understand that if wages are growing stronger than the inflation rate three point eight percent, then business must respond, they need to put their own prices up.

That's where I wonder about just where that goes to.

So you're saying if that does feel as though that's a risk the Reserve Bank then is likely to whacked.

And raise rates.

Yeah.

I think they've been quite clear about saying, look, you know, if the economy.

Is traveling at capacity, that's okay.

You know that that's broadly consistent with inflation hopefully coming a little bit lower over the next couple of quarters.

But if we start to push beyond.

That, and we start to I guess, you know, compete for inputs into production, whether that's labor or something else, then that's when we start to see upward pressure.

And that's when on wages and eventually inflation, and that sort of scenario for a central bank whose target is two and a half percent, and that's what they really need to anchor to, I think is one that they just probably have.

You know, quite limited tolerance for.

The good thing is is that the starting point for all of this, in terms of the broader economy is pretty good.

Like growth has picked up nicely this year.

The labor market's pretty close to or at to full employment, and so if we do face into some challenges in the year ahead, I think, you know, the point to remember is that we're starting those challenges from a good place.

Okay, So where are your own forecasts?

I know a lot of economists, a lot of banks have changed their own forecasts of interest rates over the next twelve months.

What's your own sense of where they go.

Yeah, so we've got the bank on hold for the foreseeable future.

So I think we're very comfortable with this idea that actually this economy doesn't need any more interest rate cuts.

So, you know, growth is picking up, inflation is a bit higher than the bank would want, the labor markets at full employment, the global economy has actually turned out to be better you know, this year, then perhaps we all thought six or so months ago, So it's really hard to argue that the bank needs to lower rates.

Is an economy that doesn't.

Need that, And then I guess the question is, you know, what what chance we are we sort of putting on the fact that, actually, you know, maybe if the economy continues to pick up and we do start to see inflationary pressures emerge, again, does the bank have to respond to that.

We're not quite at the point where we're looking for rate hikes, but I think we're pretty sensitive to the fact that that seems like something we should maybe at least considering in twenty two, twenty six, and remaining quite watchful around that.

And I think that the key to all of this is that if we get to that point, the important thing is that, you know, we're unlikely to be staring down the barrel of a really aggressive tightening cycle or materially higher interest rates.

This will be I think the way I would phrase it's just a modest recalibration of policy where the bank just sort of thinks that it needs just to tap the brakes a little bit but not a lot.

To Seally Old.

Always good to chat to you, many, thanks for your.

Time, Thanks very much, Ross.

Tap the brakes.

After the break, we investigate the cause of big share price falls for buy now pay ladder companies in the United States.

It's great to have your company, you're own business.

Nown Well, in the past couple of days there have been big big falls in the buy now pay ladder companies, notably Block, which owns after Pay, and also Zip.

That comes after attorney generals from seven US states launched an inquiry into the pricing, consumer contracts and disclosed measure of these payments companies.

One of those, the Attorney General of Connecticut, William Tong, who led this, said, we're asking the six largest buy now pay laddered lenders for detailed information on their costs and fees, that disclosures how they vet their customers ability.

To pay, among other questions.

Now there's a political twist.

Here because President Donald Trump rescinded a decision of the Biden administration to require buy now pay latter companies to adhere to the same consumer protection laws as other lenders.

Hence, the states now have banded together to impose the regulations on the sector, which is similar to that here in Australia.

Now it's had an impact on the market.

Zip shares in the past week in Sea down seven and a half percent, and also the after pay owner block down by about five point three percent.

So let's bring in here Brad Kelly, who is managing director of the Payments consultancy Payment Services.

Brad, always good to chat to you.

Is what the United States, these states are seeking to do terribly different to what the Australian government died in imposing credit laws upon the Bayan air pilot a sector.

You're exactly right, Ross, So you've picked up on my line, which was the twenty twenty four Biden administration decision and politics aside.

This is where politics and payments sort of mix, and Trump's thrown that out, so that's fine.

And now we've got the situation where attorneys general have had to step in.

So it's been a bit of a wild West for the last little while.

We saw Klana go to IPO and that was a massive deal and then they lost one hundred million last quarter, but that's pocket change for someone like Klana.

So now we're seeing seven attorneys general, the most important of which is California.

So California is the fourth biggest economy in the world, and when you lose California, just like the presidential race, you've kind of lost everything.

So California is the one to watch in this race, and I think the Attorney's general sort of they're sniffing the wind on this a little bit.

The American consumer is under a shit huge amount of pressure and we can see that with auto loans blowing out, credit card arrears blowing out.

There's a lot of nervousness.

So this is why we're seeing the rumblings with the share price.

So give me a sense of this.

So, Brad, is the buy our pay latter sector as all pervasive in the United States as it is now here in Australia, given the fact that the locals, the whole sector sort of emanated out of Australia.

Look, you're right, I mean fundamentally, we were the sort of test case and we saw the narratives come across our desks.

As you remember, everyone's going to cut up their credit cards.

We're the greatest and greatest, And instead what we saw was they didn't get any more than collectively one and a half percent of total payments market share, and the two things that would take them out would be regulation and search arging.

So regulation came through, and as soon as that came through, buy now Pay later said oh, we welcome regulation, and what we saw was a stagnation of their businesses.

So what's happened with instance ZIP in Australia and to Cynthia Scott's credit, she's turned that business around, that's become a very standard consumer consumer credit business.

But they've pivoted to the US.

So the Australian business is basically stagnant or going backwards.

They've pivoted straight into the US where they're seeing massive opportunity.

So obviously bigger population, bigger opportunity, and that's where they're charging.

And of course when you see seven attorneys general come in and do this, then that's going to put the brakes on.

Block is a different organization with after pay that behaves a little differently because you've got Square in there and cash app and mister Dorsey's crypto.

So we are seeing a bit of a shakeup and I think this will have a way to run and we'll see what these attorney Attorneys General get as far as a reply goes, because that will be very interesting.

Okay, So Block though quite after pay back in twenty twenty one, but the last year or so they've written off around twelve point two billion dollars of the value of after pay, So that says something about the intrinsic value of that business, or indeed they simply overpaid in the first place.

Yeah, thirty nine billion and you're right off twelve billion in three years.

I mean it shows you that dare I say, practically worthless.

Although the two founders have done very very well out of it.

Look, there was always question marks over this, and I think Dorsey's strategy was to try and bring after pay into block and then leverage off Square and cash App.

The problem is that in Australia cash app has no place because it doesn't solve a problem here.

Square has done very well, but their growth is now somewhat stunted because once you've got all the customers that they can get, they now have regulation that has come in.

Where do they go to So obviously US, but then that's starting to be to be focused on.

So they are starting to box themselves in a little bit.

So they will be fighting this these requests from attorneys general very very vigorously.

They don't want any part of it.

I can assure you so well.

I've got you.

You mentioned earlier on about credit card search arge fees I noticed that last week Nerve Banks said it may water down its controversial proposal to impose a ban on those credit card surcharge fees.

What's your own sense of where this ends up landing?

Look, the original proposal was to ban debit card searcharges.

That was the original proposition, and over time credit cards came into that discussion.

So the Reserve Bank has simply gone back to debit cards are the focus.

They are seventy percent of the payments we make.

So that looks like and again I can't put words into the Reserve Bank's mouth, but it looks like the surcharge ban on debit will happen at some point.

This's been pushed out till March as far as the total decision has been made, but there looks like some carveoutes will be made.

And one of those car vutes will be for commercial cards, which is cards that are used by corporates and businesses and those sort of super duper premium cards which you earn a lot of points on.

So that looks like that could be quarantined and that could be surcharged debit not.

But we're waiting to see how that goes.

I suspect that this is going to start to look like a fairly measured response.

But I think the Reserve Bank has really understood the message from small business, which is you just can't tip in these merchant fees back into the system and expect small businesses to absorb two or three percent in a market like this is just not reasonable.

So they are looking very very closely at reducing the cost of small business, then to look at probably banning debit, but then also looking at carving out commercial and high end credit and that will keeps fees from a MasterCard happy too.

Indeed, I'll tell you what.

It's always good to get you on the program.

The managing director of Payments Consultancy Payment Services, Break Kelly.

Always good to chat to you any Thanks for your time.

Thank you Ross Brad Kelly.

There wrapping up our program for today, thanks to your company, and we'll do it all again tomorrow