Australia’s economic growth in the September quarter rose by just 0.2%, at the bottom range of economists’ expectations and slowly enough to give governor Glenn Stevens pause for thought ahead of the RBA’s next rates decision in February.
Annual growth dipped to 0.5%, and the figure compared with 0.6% in the June quarter, confirming Australia’s Houdini-esque escape from a technical recession. Economists had tipped the growth number to come in at 0.4%. But Treasurer Wayne Swan was immediately on the front foot, spruiking the government’s schools modernisation program and noting a 6.2% increase in public investment and the “remarkable” state of the local economy.
But the broader economic situation remains ambiguous. As Tim Colebatch noted yesterday, income and production data is still going backwards — the Australian Bureau of Statistics only reaches its “growth” rate after averaging out the three indicators. While commodity exports continue to boom and more than 30,000 full-time jobs were added last month, business lending and non-residential building remains weak.
Crikey asked a group of leading economists for their reaction to the national accounts and their sage predictions for the year ahead.
Stephen Walters, JP Morgan: It’s pretty disappointing — we had predicted 0.5% growth and the lowest predictions were 0.2%, so it’s safe to say the economy barely grew in the third quarter. There was a big drag from net exports — that is, a big rise in imports and fall in exports. We think the economy will still turn around very quickly, with growth in income from inventories that were imported, so you won’t see as big a gain from net exports in the first quarter. It’s swings and roundabouts , but at face value it looks like we still have a pretty sluggish economy. It should be noted that other industrialised economies are still contracting though.
Warren Hogan, ANZ: I wouldn’t read too much into the overall GDP numbers. There’s a lot of volatility as the economy emerges from the global economic downturn. Net exports worked to cushion the private economy but as we recover and domestic demand increases imports generally rise more quickly than exports. So although the figures show the economic terrain as not ideal, it also indicates broader the growth of inventories and household consumption, which are key private-sector drivers. Although public-sector growth will continue, it will no longer be the key of growth in the economy with the foundations now being laid to achieve economic growth of 3% or higher in 2010. While indicators like residential construction are picking up, the missing link remains business investment. Nevertheless, most of the lead indicators show a very healthy set of numbers, utterly consistent that are telling us that we’re moving towards a full recovery.
Shane Oliver, AMP Capital: That was our forecast. We were worried that the figure might be negative but the 0.2% figure was always on the cards and a fallback in September because of the stimulus that hit earlier in the year wasn’t too bad and was pretty much as expected. Household demand was not too bad and housing personal spending has started to pick up, but business confidence and the investment plans filtering through from companies suggests business investment will pick up and exports volumes will rise where they were lower in the September quarter. With consumer confidence and a housing recovery looming, the global climate and government infrastructure spending suggests to me that growth will accelerate sharply to 4% by the end of the year, with the current number just a temporary erosion. I don’t think the figure will necessarily sway the Reserve Bank at the next meeting, but the bank indicated its previous decision was finally balanced, so they may decide to hold steady.
Steve Keen, The University of Western Sydney: What the market economists are saying is bullsh-t, those who have a grasp of the excessive level of the debt in the economy know that we’re a long way from a recovery. Government policy has done everything except reduce debt, and has actually encouraged people to go back into debt while debt continues to decline on an aggregate level.The government’s King Canute policy is having King Canute-type effects. Given the scale of the stimulus, the rates cuts were worth a 5% increase in household disposable income and stimulus led to a 9% jump in household disposable income, but it’d be crazy to maintain it. The RBA’s assumptions about the future are based on a temporary view of the cycle and stupidly assumes that once we get over the exogenous shock and return to business as usual, excessive levels of private debt will simply evaporate.
The RBA’s strong dollar policy has all but destroyed the export industry I work for, so I’m heading off overseas to contribute to the growth of someone else’s economy. Will Australia come out of this crisis stronger or weaker over the long term I wonder.
^ Where are you heading that is in better shape than Australia?
@ Jeebus, it is pretty hard to soften our currency when the US and the UK are printing money at a rate faster than any point in their history. Wait until the market gets some confidence that the US and UK are turning around before our currency heads back to where it belongs i.e 0.70 – 0.80 USD and 0.40 – 0.50 GBP. Our currency is high yielding, resource backed and highly liquid so it is hard to see it being maintained at its current level.
where else would you go Jeebus? I am based in the UK and I tell ya, its still pretty tough over here. US? nope. Singapore? nope. Japan? definitely not. Germany? maybe. France? maybe.
I still believe that Australia is out of the woods, that is, assuming that there is no more toxic debt in the US and Europe that global markets dont already know about.
If there was another downturn in the global economy, and I hope that the MENA region is able to meet its debt obligations, our new level of national debt will ensure that our starting position is alot different to what it was previously.
@ The Duke – Yes, the mass spending programs, currency devaluation & manipulation by the world’s largest economies – UK, US, China (with its US peg), and Japan – are undermining our export competitiveness.
I develop digital entertainment, and it’s an industry that was thriving without tax breaks and subsidies due to the pool of experienced talent in Australia, and our ability to undercut American studios when bidding for contracts. The wildly fluctuating currency has thrown a spanner into that. How is a company supposed to plan a $5-20+ million project that spans several years of development time when the costs can blow out by 30% in the space of a few months?
The global games industry is still growing, but Australia has had a shocker year, with several large studio closures and hundreds of layoffs. These were high paying jobs bringing foreign dollars into the local economy, that are now gone. If our currency remains where it is, the remaining large studios will probably close down throughout 2010, and we’ll be back to the little leagues again.
As for me, I’m heading to Canada, where the industry has been cushioned from the Loonie’s parallel rise in value by tax breaks and other government support. Hopefully there will be an Australian industry for me to return to in a few years time.
all the best with that Jeebus and sorry to hear about your industry..
for every win that the government feels compelled to gloat about there are also losses. I highlight their poor handling of the government guarantees and the non extension to mortgage funds – I know for a fact that job losses happened in that industry too due to the poor handling by the government.
I profess to not knowing alot about the Canadian economy but understand them to be in a similar boat to us? assuming the US is well on its way to recovery and that the US is one of the largest trading partners of Canada, could be a good choice!
all the best.