There’s a lot of doom and gloom and frowny faces around at the moment, but the Aussie economy is still the envy of the world, and these charts show just how much momentum there is behind us.
Joe Hockey is paving the way for a slash and burn budget, carefully managing expectations so that if a velociraptor comes storming out of the Treasury papers and starts eating journalists, no ones going to be surprised.
And why wouldn’t he? The first budget is the one to do it. You make a few enemies now, in your first budget, and then you buy them off again in the budget before the election, and everything’s sweet.
And democracy’s the winner on the day.
But in all the hoo-ha, let’s take a look at this narrative that the Australian economy is sinking like the Titanic and the only thing that can save us are an militia of velociraptors dressed as Treasury officials.
Not that I don’t think there’s room to give the public service and nip and tuck, but do you have to scare the be-jeezes out of people in the process?
First up, the Australian economy is still the envy the world. Still. What’s that? Like 10 years in a row?
If we were Americans we would have declared some sort of parade and handed out little Aussie flags to everyone.
But check this chart out here:
Indexed to 2007, it compares our GDP (left panel) and employment (right panel) to the US, the UK and Europe.
Yep. Aussie Aussie Aussie!
Not only has our economy outperformed the world, we’ve done it with style. We totally side-stepped the GFC, and our economy continued to grow through it all. Employment growth stalled a little, but never really lost ground.
You couldn’t have really asked for more than that.
Of course the big story in that marvellous, dummy, side-step, goose-step manoeuvre we pulled on the GFC was the mining boom.
The mining boom reshaped the Australian economy. This chart here gives you the basic idea. This is the make up of Aussie exports:
From around level-pegging with services, agricultural and manufacturing exports at the turn of the millennium, mining exports have exploded in recent years, and totally dominate trade.
But recently they’ve collapsed and we’re all going to die. I mean, no they haven’t. They’re still rising, and recently reached new records. Nothing to worry about here. The goose is still laying golden eggs.
That’s not to say the transitioning mining boom is going to present us with some challenges. But it’s not in exports and earning potential. It’s in investment. The phenomenal pace of mining investment has eased some-what in recent years, with those head-line mega-projects becoming thinner on the ground, and so we’re looking for the rest of the economy to pick up the slack…
So how are we doing on that front?
Well, actually not as bad as some people might tell you.
The retail sector has had a rough trot in the past 5 years, but has actually bounced back in the last six months. Retail sales are currently growing around 6% a year. Growth’s been stuck around 3% in recent years, and it’s good to see growth get back to more ‘normal levels’:
The construction sector, also one of the pillars of the Aussie economy, is also bouncing back strongly, as I reported last week. Higher prices are bringing developers and banks back into the game, and that’s good news for output and employment.
This chart here follows loans for new housing construction (in billions of dollars). It’s bounced up to the highest level in 10 years! What we’re looking at is the emergence of a construction boom.
At the same time, the manufacturing sector, despite some high-profile closures, is also doing surprisingly well. Activity has picked up in the last six months, and this graph here tracks loans to the manufacturing sector. They’re the highest they’ve been in two years!
That’s good news, because loans tend to go hand in hand with expansions in production and output.
I think a lot of people don’t realise how tied Australian manufacturing fortunes are to the rest of the world.
That’s what this chart here shows. Australian manufacturing business confidence moves very closely with The Global Conditions Index. We have a very open manufacturing sector.
This is good for trade, but does mean we can cop a beating when the Aussie dollar starts to soar. In fact, I reckon most of the recent pick up probably has to do with the depreciation in the Aussie we’ve seen over the past year.
And so the Aussie dollar remains one of the biggest challenges we face, and one of the key pivot points for the Aussie economy. This is unfortunate because there isn’t really much we can do about it.
But what it does do is put a lid on interest rates. If the RBA hikes rates, then AUD-denominated investments (like government bonds) start paying more, and foreigners start buying more Aussie dollars, pushing the price up.
The RBA’s got to keep a close eye on the interest rate differential, and pretty much all those countries in the first graph have zero or close to zero interest rates.
This keeps hefty downward pressure on rates.
Which in turn pumps more and more cash into the housing sector, further fuelling the construction boom…
… as well as retail spending and loans to the manufacturing industry.
So do what you need to do, Mr Hockey. I understand how politics works. Sometimes you need to scare the patient to get them to take their medicine.
But I’m not buying into this ‘economy in tatters’ story.
Paul says
On the mining front yes our output is increasing, however prices per tone are on the slide this is causing miners to rationalise and resulting in less jobs & poorer working conditions in the industry.
luias dos santos says
this country is jok, non futura for tha kids,for tha last 40 yers only greed people manager this country no futura wanth is in in projecto this country for the futura nothing mining leteme lave. look around in asia all the country have same wer to gou in the futura not australia,u have to industrilation thisse country expend alot in education and thene u have same ness 15 yers or 20 this way wat u have in 15 to 20 yers is noting non futura non education a vcery hagry country.
Jenny Kennedy says
I work in a consulting engineering firm – things are indeed picking up, so I don’t understand the scare tactics being used at the moment either, apart from political point scoring (and is that the adults talking?)
Cheers
Jenny
Gerry says
Is the firm winning jobs or are they buying them?
Maria Lucas says
John, what are your thoughts on Aussie interest rates. Do you think we’ll have stability for the rest of the year?
joe says
It’s not the economy, it’s the deficit we have to cut back, and we have to deal with an ageing population. We can’t afford to pay for an aging population, nor keep paying for a huge deficit.
Ken. says
Joe,Your second name isn’t Hockey, is it.
Paul M says
I seriously wonder at the truth of much of what comes from Liberal Party or conservative media sources these days. Can we trust the bleak reports from Australia, because they so often completely contradict what is being said about us and our economy overseas by people who should know what they’re talking about? And those overseas sources still seem to think we are “the envy of the world”. Yet here we are constantly being told how dire our situation is.
According to the Government and the conservative media, the economy is about to sink without trace unless we all make sacrifices. And yet, if you look objectively at international comparisons, we have done remarkably well over the last few years and through the greatest economic crisis since the Great Depression. And apparently we are still going very, very well. Certainly we do have a major problem rearing up before us as Baby Boomers reach retirement age, and questions about who should be entitled to claim a pension need to be asked, sooner rather than later. But is this Labor’s fault, or the result of decades of policy from both sides of politics, not least from the tax cut mantras of the Liberals? It’s just that it seems hard to see why an old person living on the breadline in a rented hovel should have their meagre pension reduced, when near-millionaires living in their paid-off homes qualify for a pension, and when Federal Liberals want to introduce a payment which will take billions from public revenues to give paid parental leave to wealthy people who don’t need it and have never had it before.
After Labor lost the Queensland election, the Government held their show-trial Commission of Audit, led by the completely impartial Peter Costello. He proclaimed, lo and behold, that Labor had left all the cupboards bare and Queenslanders would have to make sacrifices. So massive public service job cuts resulted to save what we were told was desperately needed money, and now we are hearing that we are going to have to sell off the farm after all in order to survive. (This is all despite two and a half years of “adult” LNP Government, and their recent generous payrises for themselves!) But even doctors currently in dispute with this Government have been labelled as greedy and under the influence of pernicious unions. (Right, that’s true. Most doctors I know are filthy-rich left-wing crazies who are just waiting to redistribute wealth to the proletariat come the Revolution.)
If there is one thing voters have come to believe about Labor, it’s their inability to manage finances. Whether it’s actually true or not is hard to say, because it’s always conservative sources that keep shoving this down our throats. Even while the Queensland Audit was in progress, it was clear that the strategy was being tested as a primer to aid the Federal Liberals in gaining power, and would be used as a blueprint afterwards. Thus we now have tribunals and public inquiries on all kinds of topics, but especially ones that will give a predictable result reinforcing the notion that unions are without exception pernicious and Labor officials are at best incompetent, and at worst criminally corrupt. We constantly hear that Labor has left everything possible in an extraordinary mess everywhere. Proclaimed loudly and long at every available opportunity, this Liberal strategy has never been more successful. Perception may or may not reflect reality, but it’s what counts.
The Goebbelsian principles of keeping the messages simple (short slogans), establishing people we can all happily hate together (bikies, boat people, dole bludgers and welfare cheats, corrupt Labor politicians) as a diversion from serious issues, and constant repetition of all of this have borne such fruit that Labor seems unable to even understand what is happening, much less find a strategy to counter it. So is there a deep subliminal message beneath the constant talking down of our economy? (“You are going to suffer one way or another, for your own – or our – good, even if we have to manufacture the situation. But it will all be Labor’s fault!”)
A certain politician once wrote, “In the big lie there is always a certain force of credibility; because the broad masses of a nation are always more easily corrupted in the deeper strata of their emotional nature than consciously or voluntarily; and thus in the primitive simplicity of their minds they more readily fall victims to the big lie than the small lie, since they themselves often tell small lies in little matters but would be ashamed to resort to large-scale falsehoods. It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously. Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation.”
Are we being told “colossal untruths” especially in connection to the state of our economy? I don’t know. Could someone with an objective mindset give us the truth without the spin?
(By the way, that certain politician was Adolf Hitler.)
Ken says
Paul M, Well said mate. My idea is the only reason Costello had a large surplus is because he got it from you know who to pay for their own superannuations on retirement from politics. This Tory government is doing the same in Qld. and Federal politics in all urgency. You can see why they’ve changed to large pay rises now. They know they will be a one term wonder. You can fool most of the people most of the time, but not all the people all the time. Anna Bligh got blamed for the Qld floods, will this other bloke get blamed for Cyclone Ita. Some of us are hypocrites, aren’t we. Cheers mate, Ken.
Rudolf Ruyter says
Hi Jon
We may be the envy of other economies/countries, but lets get real……it has not been due to smart economic measures by government……
It’s basically been due to dumb luck, which is slowly running out.
Our economy & future could have been vastly better if Governments had been proactive instead of only reactive.
We need to quickly and heavily invest in Empire & Employment building infrastructure, so that private enterprise can flourish in Australia, which will ensure that the population & economy flourishes.
If it had not been for China’s insatiable appetite for resources, where would we be now.
Even our “Plan A” (the mining boom) was not due to political brilliance, but due to business brilliance, and even now we still have no government plan “B” or “C”.
Government is still trying to “Sell the farm” to oversees interests, and sell our income producing assets (so called “Privatization”), to finance our future (which are short term patches), instead of building infrastructure to develop employment (and agriculture) in Australia.
Government is still trying to tax a declining few, and spend its way out of our gloomy economic future.
And still our kids will need to clean up our ecological and financial mess.
I pity our near future generations
Regarding our mining industry…If I were china, I would now be establishing footholds for my manufacturing in Africa….and they are already doing that……I would then not need as much Australian ore anymore as Africa had an abundance and cheaper to mine……and I could buy into the mines more easily.
Where then is Australia’s plan “A”.
This will gradually happen over the next 10 to 20 years.
While we may now boast that we dodged the economical bullet, we can not blindly rest on our laurels.
We must now have continuous proactive governments to build us into a secure future.
We must have plan “A”, & “B” & “C” , work on all, and even if 2 fail, at least one will secure our future for our kids.
Regards
Rudolf
Murray Horne says
You are so right, Rudolf, we have squandered the proceeds of the mining boom, we have politicians of all persuasions being paid ridiculous amounts of taxpayers money and benefits for life, we have short term reactive leadership more interested in looking after corporate profits than the interests of the bulk of the working people, we have a disgraceful underdeveloped road, rail and water infrastructure network, we have an open door border policy that lets practically anyone in, while at the same time telling our pensioners they are going to have to take a pay cut and telling the rest of us that we are going to have to work until we are 70 before retiring.
This is not the land of opportunity anymore, when are our politicians going to lead by example, slash their own pay and benefits, before telling us to do so and give us some proactive leadership first.
Ian Coombes says
I thought it was a nice example of Tony Abbott’s constant fantasy talk that the week he moved into Kirribilli he told the nation that we had to expect to cut our standard of living. Labor’s performance is pathetic to non-existent. It is clear to me that we need to look closely at candidates, rather than be carried away with major party regal/presidential gameplay of trying to have us see only the party leader at election time. We need more independents of quality since the major parties are a visionless, national interest free zone.
Ian