Business Outlook: The ‘two speed’ screws are tighteningDOWNLOAD
Monday, 25 July 2011: Forecasters are dialling down estimates for advanced economy growth in the wake of a surge in commodity prices and Japan’s awful earthquake, while government spending cuts and tax hikes are also slowing growth everywhere from the UK to Italy, Portugal and Greece, says Chris Richardson, Partner with Deloitte Access Economics, in its latest Business Outlook.
However, Chris Richardson believes fears are overblown and recovery is continuing. China and India are starting to cool, but their slowdown, like the associated lift in their interest rates, is modest. With developed economies doing better than expected and emerging economies only throttling back a bit, the upshot is continued above trend global growth this year and next.
Turning to Australia, Mr Richardson highlights how tough it is out there for many families and businesses. Most of Australia’s growth engines are misfiring: (1) families are saving rather than spending; (2) stimulus has run its course; (3) housing construction - a pocket rocket in the past recoveries, is limping along as interest rates drown out population pressures; while (4) our export gains in resource volumes are being mostly matched by lost sales to tourists, manufacturers and international students.
“That means Australian growth prospects are very narrowly based. Total capex – including the public sector and housing - will account for almost all Australia’s 2011-12 growth. Business capex alone should account for almost two-thirds of our growth. That’s tough to do, but achievable,” said Chris Richardson.
Chris Richardson said the world is desperate for Australia to grow faster, with the resources boom generating job opportunities in more sectors and more States. But though demand is there, supply isn’t - migrant numbers are slumping and the pace of retirement is rising.
“Job gains are starting to slow, partly due to the ‘two speed economy’ negatives, but now also due to a lack of workers as mismatches between job demand and worker supply become more evident. That’s why you can now earn more flipping burgers in Karratha than you can being a GP. That is why participation – the willingness to work – has become a vital variable,” said Mr. Richardson.
In turn, the pressure from high exchange and interest rates is making life extremely uncomfortable in much of manufacturing, as well as tourism, parts of education, retailing and farming.
As the straightjacket on skilled workers is tightened over the next two years, many of these sectors will also find they face unwelcome wage pressure from mining and construction.