Oz hits growth milestone as worrying signs emerge
AUSTRALIA recently posted an impressive milestone as its economy marked 28 consecutive years of growth – a world record.
Yet, two different portraits of its economic health have emerged – while the federal government insists that the nation is performing strongly, economists are much less optimistic.
Despite avoiding a recession for more than a generation, Australia posted growth for the year ended June 30 of just 1.4 per cent – its weakest showing since the aftermath of the 2009 global financial crisis.
Consumer spending is low and housi ng i nves t ment shrank by 4.4 per cent in the April-to-June quarter as property prices slumped.
But Australian Treasurer Josh Frydenberg insisted that the nation was in relatively good shape, pointing to other places that have experienced a slowdown.
He said Australia’s economy was “remarkably resilient”, noting that employment was growing, despite the impact of both the trade war and a severe domestic drought.
“Let’s not forget that Germany, the United Kingdom, Singapore, Sweden and other countries all experienced negative growth over the [April-to-June] quarter,” he told 2GB Radio. “Yet, Australia’s economy continues to grow in the face of those challenging economic headwinds.”
Australian Prime Minister Scott Morrison is insistent on delivering a budget surplus next year, which would be the first since 2008. It seems likely, as soaring iron ore and coal exports to China have pushed Australia’s trade balance to record highs.
Last week, data showed Australia recorded a current account surplus for the Aprilto-June quarter of A$5.9 billion (US$4.06 billion), its first such surplus since 1975.
But many economists believe the government’s cheery picture downplays worr ying signs, such as weak business investment, poor productivity and stagnant wages.
Household debt – at about 200 per cent of the average income – is among the highest in the world, due to people taking out hefty mortgages in the recent property boom.
Westpac Bank chief economist Bill Evans said Australia’s strong population growth had helped to prop up the economy. But the economy, when measured per capita, “went backwards in the past 12 months”, he said.
“The key parts of the economy, such as business investment, dwelling construction and the consumer, are really off,” he told ABC News. “The fundamental problem is weak wage growth and that’s what’s weighing on the consumer. And as the consumer becomes more cautious, so [do businesses].”
The Reserve Bank of Australia (RBA) has dropped interest rates to record lows, but now has little scope left to make further cuts to try to stimulate spending and investment.
And rate cuts have not always had the desired effect – they have enabled people to take out new home loans or boost repayments of existing mortgages, but have had limited impact on consumer spending or business investment.
RBA governor Philip Lowe has been urging the federal government to boost infrastructure spending, which would stimulate the economy but could also rule out Morrison’s much-coveted surplus.
“I think we can do more,” Lowe told the Sydney Morning Herald. “Right at the moment, there is limited capacity to do more mega projects in Sydney and Melbourne, but there is capacity elsewhere in the country.”
Some commentators believe the government will wait until it has delivered its surplus in the first half of next year and then boost spending.
When asked about Lowe’s concerns, Morrison defended his plan to achieve a surplus, insisting it was necessar y to a l low t he gover n ment t o repay debt.