hoofarted

7 Sep 2012, 08:11 AM

This is quite an achievement. I am happy to be a part of it. It does also mean that there are adults who have never experienced anything but good times. How will they respond to bad times when they do come?

silverx

7 Sep 2012, 11:29 AM

what goes up must come down

NotFooled

7 Sep 2012, 08:34 AM

Anger and violence?

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Analysis: Australia's success story takes a chilling turn

By Wayne Cole
SYDNEY | Sun Oct 7, 2012 5:04pm EDT

(Reuters) - Australia faces a gathering threat to its 21-year run of recession-free growth that will likely require the central bank to cut interest rates to record lows and keep them there for some time, if the winning streak is to stretch to 22.

The slowdown in China has deflated prices for Australia's key resource exports while forcing miners to scale back on their most ambitious expansion plans. When the country reported its widest trade deficit in three years for August, it seemed just a taste of what was to come.

"It's like we're watching a slow motion train wreck," said Su-Lin Ong, a senior economist at RBC Capital Markets.

"The decline in export earnings will take toll on wealth, incomes and consumption right across the economy," she explained. "And it's happening when fiscal policy is being tightened and the Australian dollar is restrictively high."

As a result, she expected the economy's strength would bleed away into 2013, leaving it dangerously exposed should a seven-year old boom in mining investment also top out that year.

The government and central bank still forecast growth of around 3 percent for the next couple of years.

But when the mining splurge turns, as it must, there will likely be significant quarterly falls in investment even as the level of spending stays high.

And since investment is set to reach a heady 9 percent of Australia's A$1.5 trillion ($1.53 trillion) in annual gross domestic product (GDP), such falls could easily cause a couple of quarters of contraction, the textbook definition of recession.

PAST THE PEAK

The danger was hinted at by the Reserve Bank of Australia (RBA) last week when it surprised most economists by cutting interest rates a quarter point to 3.25 percent.

That was the lowest in three years and only a whisker from the nadir of 3 percent touched in the global financial crisis.

"The peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected," wrote RBA Governor Glenn Stevens in explaining the latest easing. Previously the bank had thought spending would crest as late as 2014.

"As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur," said Stevens.

The central bank has been hoping that as the investment stage of the mining boom topped out, other sectors such as home building, retailing and tourism would take up the slack.

So far, however, the transition has been glacial. Growth in mortgage credit, for instance, was the slowest on record in August, while sales of new homes hit a 15-year trough.

Consumer borrowing has been going backwards with Australians preferring to squirrel cash away in banks rather than risk investing in homes or shares. Since 2008, bank deposits have climbed by a cool A$260 billion, or almost 60 percent.

Household debt also remains high, at around 149 percent of disposable income.

Any foot dragging by the rest of the economy could have serious implications for unemployment as mining has been a big hirer in the last couple of years, helping keep the jobless rate down near 5 percent.

But while a lot of workers are needed to construct mines or liquefied natural gas projects, it takes far fewer to actually run them. This was a point highlighted recently by the head of the RBA's economics department, Christopher Kent.

He estimated that, for iron ore mines, four times more people were employed in the construction phase than needed to dig the steel-making mineral. For LNG projects, the difference was more like 15-20 to one.

"So while employment and wage growth in the resource sector is presently robust, it is possible that this may start to reverse in the next couple of years," Kent cautioned last month.

When cutting rates this week, it was notable that the RBA was already sounding more downbeat on the jobs front by saying the labor market had generally softened.

NOT PLAYING ITS PART

Policymakers have long assumed the Australian dollar would ease the transition by falling sharply and so make life easier for sectors such as manufacturing and tourism.

But for investors to dump the local dollar they have to buy some other currency, and attractive alternatives are few and far between these days.

Central banks in the United States, Japan, the UK and Switzerland are all adding to the supply of their currencies either through quantitative easing or outright intervention.

The European Central Bank has not gone quite as far as yet, but grinding recession and endless political risk are not exactly a recommendation for holding euros.

Australia's triple-A rated debt also remains a big draw for sovereign funds and long-term investors wary of the risk of downgrades elsewhere.

Thus while the Aussie dollar has eased in recent weeks, it remains high historically. Weighted against a basket of major currencies, its current level of 75.8 is not that far from 27-year peaks and a world away from the lows of 51.0 touched in the aftermath of the global financial crisis.

That puts the onus on the RBA to do more, particularly as Australia's Labor government is politically shackled to a painful fiscal tightening aimed at delivering a promised budget surplus years before most other developed nations.

Unlike past downturns, inflation is still low, giving the central bank more room to reduce borrowing costs.

"The end of the commodity price and associated capex boom means more will probably have to be done to stimulate domestic demand," said Adam Donaldson, head of debt research at Commonwealth Bank of Australia.

He thinks 10-year government bond yields could get down to all-time lows of 2.5 percent in coming months, from a current 2.93 percent, with the RBA's cash rate not too far behind.

"The strength in the Aussie against this backdrop is inherently disinflationary - so we look for interest rates to remain low for an extended period as the economy navigates this difficult path." (Editing by Kim Coghill)

Read more: http://www.reuters.com/article/2012/10/07/us-australia-economy-boom-idUSBRE8960IL20121007

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Recession possible in 2014, economist warns

November 27, 2012 - 11:08AM

Australia could face a recession within two years unless the dollar and interest rates fall and major labour market reforms are introduced, a leading economist warns.

Saxo Bank chief economist Steen Jakobsen warns that with the mining investment boom expected to peak in 2013, Australian authorities need to do more to ensure other sectors of the economy can pick up the slack.

He fears if no action is taken, then Australians could be staring at a recession in 2014.

‘‘You have an excellent starting point, you have the ability to both fiscally and monetarily support and mitigate the effects of this slowdown,’’ the prominent Copenhagen-based economist said. ‘‘If nothing happens, if we have a political vacuum leading to nothing being done next year and the price (of the Australian dollar) remains above where it needs to be then, yes, absolutely a recession is possible.’’

Greater workplace flexibility and the abolition of some indirect taxes are necessary to reduce unit costs and making businesses more competitive, Mr Jakobsen says, with a federal election due in the second half of 2013, he knows action on that front is unlikely.

‘‘2013 is a huge year in terms of the decisions that need to be taken but there will be a political vacuum until the election is held, which I think is a wasted opportunity,’’ he said.

So he says the heavy lifting will fall to the Reserve Bank of Australia (RBA), which will need to cut the cash rate sharply to stimulate the economy.

Read more: http://www.smh.com.au/business/recession-possible-in-2014-economist-warns-20121127-2a4jy.html

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Australia extends growth run to 21 years

Wednesday, 06 March, 2013, 11:44am

Australia’s economy grew at a moderate pace last quarter as a long-awaited surge in resource exports helped offset softness elsewhere, while recent evidence suggests the growth pulse might have quickened since the start of the year.

Signs are that lower interest rates have started to spur consumption with a revival in retail sales, rising household wealth and improving confidence among consumers and businesses.

The Australian Bureau of Statistics reported gross domestic product (GDP) rose 0.6 per cent in the fourth quarter, compared to the previous quarter when it grew an upwardly revised 0.7 per cent. That was dead in line with forecasts.

The value of all goods and services produced was 3.1 per cent higher than in the fourth quarter of 2011 at an inflation-adjusted A$372 billion ($381 billion).

“Australia has a Goldilocks economy - not too hot, not too cold, in fact just about right,” said Craig James, chief economist at CommSec.

“Inflation is under control, unemployment is low, the economy is growing at a ‘normal’ pace and our government deficit and debt levels are low compared with other advanced nations,” he explained. “To top it all off, Australia hasn’t experienced a recession in 21 years.”

Sensing the better mood, the Reserve Bank of Australia (RBA) skipped a chance to ease further at its March policy meeting this week, saying past cuts were still percolating through the economy. It slashed rates by 125 basis points last year, taking them to a record-matching low of 3 per cent.

Markets have reacted by paring back expectations on how far or fast rates might fall from here.

Crucially, it is not yet clear how the economy will cope when a seven-year old boom in mining investment finally plateaus in coming months. The RBA is pinning its hopes on a revival in non-mining investment, but so far the jury is out.

Wednesday’s data did show an economy again outperforming its rich-world peers.

Australia’s annual growth of 3.1 per cent compared with 1.6 per cent in the United States and 1.1 per cent in Canada. The UK eked out growth of just 0.25 per cent last quarter, while the EU economy contracted by 0.9 per cent.

Output for the 12 months to December was worth A$1.5 trillion in current dollars, or about A$64,700 ($66,200) for each of Australia’s 22.8 million people. That compares with per capita GDP in the United States of $50,300.

Australia passed Spain as the world’s 12th largest economy last year, not bad for a country that is 52nd on the league table by population.

The main growth driver in the fourth quarter was exports as past spending on mining and liquefied natural gas projects began ramp up output, a trend that has years left to run.

As a result net exports, or exports minus imports, added 0.6 percentage points to growth in the quarter for the biggest contribution in almost four years.

That was just as well as household spending, which accounts for around 54 per cent of GDP, was surprisingly subdued last quarter with a rise of just 0.2 per cent.

Consumers spent less on hotels, eating out and recreation, while also cutting back on cigarettes and alcohol.

In contrast, spending was up on clothing, utilities, health care and food. And Australians clearly felt confident enough to splash out on new vehicles where spending jumped 6.6 per cent in the quarter, to be up a hefty 23 per cent for the whole year.

On the government side, spending was essentially flat last quarter and is likely to be a modest drag on growth this year as a lack of tax revenue forces the ruling Labor Party to tighten its purse strings.

Fortunately for the prospects of future rate cuts, there was little evidence of inflationary pressures in the report while productivity growth picked up to an impressive 3.5 per cent.

Read more: http://www.scmp.com/business/economy/article/1182381/australia-extends-growth-run-21-years

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Economy marks 22 years of growth in second quarter

Reuters September 4, 2013, 11:13 am

Australia economy marks 22 years of growth in second quarter

By Wayne Cole

SYDNEY (Reuters) - Australia's economy grew moderately last quarter as modest gains in consumer and government spending offset a very flat performance elsewhere, though there was still scant sign of a much-needed recovery in business investment.

The Australian Bureau of Statistics reported gross domestic product (GDP) rose 0.6 percent in the second quarter, from the previous quarter when it rose 0.5 percent. That was enough to send the local dollar higher as there had been fears the report would be much weaker.

The result marked 22 years since the country last suffered a recession, but still underwhelmed. Crucially, there are few signs as yet that business and consumer spending is ready to take over from mining investment as a growth engine.

"Overall it tells us that the economy is continuing to grow but at a very subdued rate, and it's not strong enough to push employment or inflation up," said Shane Oliver, chief economist at AMP Capital Investors.

"We're still far from the collapse that many had feared, but we're still looking for a replacement for mining investment as a driver for growth."

The Reserve Bank of Australia (RBA) has been doing its part by cutting cut interest rates to a record low of 2.5 percent last month. Many analysts think it will likely have to ease again in coming months.

Financial markets, on the other hand, have pared back expectations for any more easing, in part because of brighter signs in the global economy and especially China.

The Asian giant takes fully a third of Australia's exports and influences the price for many of its commodities, so a stabilisation of demand there is a promising omen.

It has been enough for investors to question whether the RBA is done with its easing cycle, a run that began back in November 2011 when rates were up at 4.75 percent.

Interbank futures show a 50 percent chance of a rate cut by Christmas, down from more than 100 percent a couple of weeks ago. Swap markets have priced out any easing at all, though much depends on how the Australian dollar fares.

The central bank keenly wants the currency to fall further to help cushion the economy, both by boosting export earnings and by easing competitive pressures on domestic industry.

Many analysts suspect that should the dollar hold above 90 U.S. cents as it was on Wednesday, the RBA will choose to offset it by cutting again.