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Tony Abbott can relax: it's still the same economy, stupid Tony Abbott can relax: it's still the same economy, stupid
(10 days later)
So now we have a new prime minister and a new treasurer. What will happen to the economy and what type of economy do they have to deal with?So now we have a new prime minister and a new treasurer. What will happen to the economy and what type of economy do they have to deal with?
First off, not much will happen in the short term. The national economy is not some zippy speedboat that changes direction just because of a press release. Every incoming government has to deal with the overhang of the previous one, and until significant economic/budgetary legislation is passed there will be very little the Coalition can claim as their doing.First off, not much will happen in the short term. The national economy is not some zippy speedboat that changes direction just because of a press release. Every incoming government has to deal with the overhang of the previous one, and until significant economic/budgetary legislation is passed there will be very little the Coalition can claim as their doing.
This will be good for them because they will blame Labor for any rises in the unemployment rate for as long as they can, and also because interest rates and inflation are low.This will be good for them because they will blame Labor for any rises in the unemployment rate for as long as they can, and also because interest rates and inflation are low.
It is also good for them because despite what we have heard for the past three years, there is no “budget emergency”. Debt is not out of control. All ratings agencies are pretty happy to maintain our AAA rating so long as the plans for a return to surplus remain in place.It is also good for them because despite what we have heard for the past three years, there is no “budget emergency”. Debt is not out of control. All ratings agencies are pretty happy to maintain our AAA rating so long as the plans for a return to surplus remain in place.
After releasing their costings with a budget line only $6bn “better” over the next four years, the Liberal party basically admitted all their talk of waste was really just talk about programmes and policies they didn’t like. Moreover they have mostly replaced them with programmes and policies they do like.After releasing their costings with a budget line only $6bn “better” over the next four years, the Liberal party basically admitted all their talk of waste was really just talk about programmes and policies they didn’t like. Moreover they have mostly replaced them with programmes and policies they do like.
So the Schoolkids Bonus goes but more expensive paid parental leave is in. Waste is generally in the eye of the observer.So the Schoolkids Bonus goes but more expensive paid parental leave is in. Waste is generally in the eye of the observer.
While the economy is not in despair that doesn’t mean it is thriving. The latest GDP annual growth of 2.6% is well below the 25-year average of 3.25%. Were growth to remain at that pace the unemployment rate would likely rise by at least 0.4 percentage points in the next year.While the economy is not in despair that doesn’t mean it is thriving. The latest GDP annual growth of 2.6% is well below the 25-year average of 3.25%. Were growth to remain at that pace the unemployment rate would likely rise by at least 0.4 percentage points in the next year.
It is also a period of transition. The investment side of the mining boom is over and the export boom is starting. This won’t change just because the mining tax – the MRRT – might be cut.It is also a period of transition. The investment side of the mining boom is over and the export boom is starting. This won’t change just because the mining tax – the MRRT – might be cut.
At this point is it is worth noting the international scene. Fortunately Tony Abbott doesn’t want Australia to get “too far above its station” because when it comes to the economy we certainly take orders from others.At this point is it is worth noting the international scene. Fortunately Tony Abbott doesn’t want Australia to get “too far above its station” because when it comes to the economy we certainly take orders from others.
But the international economy is very different from what it was in 2007. A quick look at the GDP growth of China shows this pretty clearly:But the international economy is very different from what it was in 2007. A quick look at the GDP growth of China shows this pretty clearly:
The IMF estimates annual growth for China over the next three years will be less than it was for any year from 2002 to 2011. So when you wonder why people say the investment side of the mining boom is over, there’s your reason.The IMF estimates annual growth for China over the next three years will be less than it was for any year from 2002 to 2011. So when you wonder why people say the investment side of the mining boom is over, there’s your reason.
Having said that, it is not all doom and gloom. The latest HSBC Chinese manufacturing purchasing managers index went above 50 in August after falling to an 11-month low in July. But at 50.1 it means it is effectively at zero growth. And on the broader level JPMorgan Global All-Industry Output Index came in at 55.2, up from 54.0 in July and its highest level since February 2011.Having said that, it is not all doom and gloom. The latest HSBC Chinese manufacturing purchasing managers index went above 50 in August after falling to an 11-month low in July. But at 50.1 it means it is effectively at zero growth. And on the broader level JPMorgan Global All-Industry Output Index came in at 55.2, up from 54.0 in July and its highest level since February 2011.
But we can see the impact of the slowing Chinese growth on Australia when we look at the growth in State Final Demand of Western Australia. For the first time since June 2001 annual SFD growth in WA is negative:But we can see the impact of the slowing Chinese growth on Australia when we look at the growth in State Final Demand of Western Australia. For the first time since June 2001 annual SFD growth in WA is negative:
The picture isn’t as horrible as that might suggest – there will be lots of money coming into the economy from exports – but the export boom is less labour-intensive. This does however suggest that with regards to employment, the old “two-speed economy” problem is less of an issue than before.The picture isn’t as horrible as that might suggest – there will be lots of money coming into the economy from exports – but the export boom is less labour-intensive. This does however suggest that with regards to employment, the old “two-speed economy” problem is less of an issue than before.
Without an investment (and thus construction) boom out west, the new government will hope to see housing construction increase. On this score they have a lot of help from the current low interest rate – which finally seems to be having an impact:Without an investment (and thus construction) boom out west, the new government will hope to see housing construction increase. On this score they have a lot of help from the current low interest rate – which finally seems to be having an impact:
But the low rates have curiously not led to a rise in retail spending. Annual retail spending growth at 1.6% is now lower than at any time in the past 30 years. In 2003-04 when retail sales were growing around 9% a year, our national savings rate was effectively zero: as a nation we spent all our income. Since December 2008 the savings rate has been above 10%. This is great because people have paid down some of their housing debt, and it helps keep inflation low, but it’s not so great if you want to grow the economy through consumption growth:But the low rates have curiously not led to a rise in retail spending. Annual retail spending growth at 1.6% is now lower than at any time in the past 30 years. In 2003-04 when retail sales were growing around 9% a year, our national savings rate was effectively zero: as a nation we spent all our income. Since December 2008 the savings rate has been above 10%. This is great because people have paid down some of their housing debt, and it helps keep inflation low, but it’s not so great if you want to grow the economy through consumption growth:
But at least there is good news on the productivity side of the economy. When the Rudd government came into power productivity growth had been falling for nearly seven years. The Abbott government inherits an economy where productivity growth has been solidly increasing for five years:But at least there is good news on the productivity side of the economy. When the Rudd government came into power productivity growth had been falling for nearly seven years. The Abbott government inherits an economy where productivity growth has been solidly increasing for five years:
Not surprisingly the challenges in the economy remain much the same even though a new government is in place. The transition from the mining boom, the declining manufacturing sector, and the high Australian dollar: all of this doesn’t go away just because a Liberal party government says Australia is now “open for business”.Not surprisingly the challenges in the economy remain much the same even though a new government is in place. The transition from the mining boom, the declining manufacturing sector, and the high Australian dollar: all of this doesn’t go away just because a Liberal party government says Australia is now “open for business”.
But for the moment at least the feared austerity program has not occurred – unless of course you are a public servant, family with a school-aged child or foreign-aid recipient. Andrew Robb in the press conference announcing the Liberal party’s “costings” even noted that their infrastructure spends were “front-loaded” to provide stimulus now.But for the moment at least the feared austerity program has not occurred – unless of course you are a public servant, family with a school-aged child or foreign-aid recipient. Andrew Robb in the press conference announcing the Liberal party’s “costings” even noted that their infrastructure spends were “front-loaded” to provide stimulus now.
I might take issue with a number of their spends – their NBN is not costed, their Direct Action climate change plan is not costed and laughable, their proposal to build the East-West link with Victoria has no independent business case, their paid parental leave is a waste of $6bn a year. But if they avoid using their commission of audit to completely slash government spending, at least on the macro scale, the Abbott government currently looks much more like the Rudd-Gillard government than it does the Campbell Newman/David Cameron austerity-hawk ones.I might take issue with a number of their spends – their NBN is not costed, their Direct Action climate change plan is not costed and laughable, their proposal to build the East-West link with Victoria has no independent business case, their paid parental leave is a waste of $6bn a year. But if they avoid using their commission of audit to completely slash government spending, at least on the macro scale, the Abbott government currently looks much more like the Rudd-Gillard government than it does the Campbell Newman/David Cameron austerity-hawk ones.
And that is a good thing.And that is a good thing.
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