Business Outlook: 21 years without a recession...but Australia forgets to celebrate
23 July 2012: While the world continues to fear another Lehman moment amid a shudder in Chinese growth, Australia remains a global standout – 21 years without a recession and growth a multiple of many other rich nations.
Releasing Deloitte Access Economics’ June 2012 quarter Business Outlook, Access’s Chris Richardson lamented that the growth milestone passed so quietly. “We didn’t celebrate our happy 21st birthday without a recession on 1 July –we were too busy seeing a glass half empty,” he said.
“But a striking investment boom continues to do all the heavy lifting on our growth. And there’s more where that came from. Yet the peak of the project pipeline is already in sight, meaning the key prop to the faster part of Australia’s two speed economy is looking less certain the further out you look – though there’s still enough gas in the tank of huge resource projects to provide handy pipeline protection if Europe and China were to turn pear-shaped.
“Nor is the news all bad on the slow side of Australia’s two speed divide. Although the pace of housing construction continues to fade, consumer spending is surprisingly strong.
“Much does still hinge on Europe and China, and provided neither generates worse news than already expected (an admittedly key caveat), then we’d stick to the view we’ve had for a while: that the overall outlook for Australian growth is still looking rather better than most people realise.”
Mr Richardson said two speed troubles were keeping inflation low, aided by related moderation in wage gains and the $A’s stellar strength. “Even productivity is showing some signs of life and oil prices have dropped back, while carbon pricing is likely to be just a one off boost to prices,” he said.
“But the productivity improvement needs to continue – and even if it does, a steadier $A threatens less benign import prices, while wages may resume their rise as jobs recover and boomers retire.”
He said that provided the outlook for Europe and China holds, there may only be one interest rate cut left in the cycle.
Mr Richardson said some sectors were holding up better than expected. “This includes finance, which official statistics suggest is still growing rapidly and employing more people, despite announcements to the contrary, as well as recreational services, and transport,” he said.
“Even the public sector is growing well, with the huffing and puffing of the pollies yet to show up as a slowdown.
“At the same time some sectors are still making a silk purse out of a sow’s ear, with the stupendous strength in engineering work keeping the wider construction sector afloat, and others still are just downright booming, with mining production and farm output growing at double digit rates.
“There is still plenty of pain to go around as well, however. Manufacturing growth only just has its head above water, and the utilities sector is also shrinking, in part due to the absence of any certainty on the future of carbon pricing.”
Although its growth is solid and projected to stay that way, ‘people power’ and investment dollars – the two key drivers of future economic growth – are currently more plentiful elsewhere in Australia than in NSW, pointing to continuing medium term growth challenges.
A key question for Victoria has been just how much its housing slowdown would hurt. The good news is the bulk of the evidence suggests the dangers of the housing construction setback will be well contained without wider damage to the State’s ongoing outlook.
Queensland continues to recover strongly, yet this is very much one sided, with surging engineering spending the prime driver of growth. Looking further ahead, there may be rising risks to the State’s resource investment pipeline.
South Australia has been losing market share within Australia, and hopes for limiting those losses rest on an upswing in resources spending on a scale big enough to make a difference. This is code for ‘Olympic Dam’, but it now looks as if that cavalry won’t arrive soon.
There is a lot to cheer about in Western Australia. Growth is good – verging on great – and the pipeline protection offered by projects already underway means that, even if the global outlook were to worsen, WA’s activity would have the buffer of projects still being finished.
Tasmania is suffering the ‘two speed’ blow torch, with its unemployment rate above 7%.
There is no panacea for the Northern Territory – one big project does not an economy make. But the Inpex Ichthys gas project that got the green light earlier this year means a lot for a small place, and a much needed shot in the arm for an economy that’s been travelling slowly.
Growth in the ACT has to date shrugged off public sector layoffs and fast cooling housing construction. However, some of the negatives associated with these two big growth engines are still worsening.
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