An extract from a Michael Pascoe article:
The weak world champion
"Given the problems in the rest of the developed world, Australia extending its run into a third decade of unbroken growth is an amazing achievement, but you’d be hard pressed to find anyone cheering.
The December quarter national accounts confirm Australia’s status as the (developed) world champion of economics – yet the attitude of business and much commentary remains that of weakness and misery.
The Australian Bureau of Statistics figures show gross domestic product grew by 0.6 per cent in the December quarter to give a final score for 2012 of either 3.1 or 2.9 per cent, depending on whether you prefer the trend or seasonally adjusted version.
Let’s split the difference and call it 3 per cent – which is “about trend”, as the Reserve Bank had been forecasting.
Given the problems in the rest of the developed world, Australia extending its run into a third decade of unbroken growth is an amazing achievement, but you’d be hard pressed to find anyone cheering.
Instead, we continue to look for ways to find the glass half full. And if you look, you can indeed find some dark lining to the silver cloud.
For a start, the spark in the annual figure was provided by the first half of the year – the December half was running at an annualised pace of about 2.5 per cent.
And the biggest impetutus for the December quarter growth was a surprising lift in investment by governments. That’s surprising because governments of all shapes and sizes are busily trying to reduce their spending. That December quarter lift is likely to be a bit of a one-off.
So the RBA’s forecast of economic growth in 2013 of about 2.5 per cent looks more likely than anything stronger. In the conservative language of central bankers, that becomes “a bit below trend”.
The problem for much of Australia is that we have become used to doing “about trend” and better. The adjustment that’s taking place in our economy over the next year or so rules that out and – despite what politicians and much of the commentariat might try to tell you – there’s precious little the government can do about it.
It has been Australia’s extraordinary achievement to experience a massive terms of trade windfall and explosion in private capital investment without the economy getting seriously out of kilter. Yes, some regions and industries have done better than others, but that’s always the case. Overall, we’ve come through the bubble part of the boom without inflation getting out of hand – something we’ve never managed before.
We are now going through a double adjustment that won’t be as easy as the unsustainable pre-GFC boom years when we were partying very hard indeed.
The first adjustment has had plenty of publicity: the construction phase of the commodities boom tailing off. Based on last week’s ABS capital investment survey, it looks like the tailing off will be nicely gradual, but it’s tailing off nonetheless. Our economy won’t be getting the lift to growth that it received when the capex numbers were skyrocketing.
What’s less understand is the second adjustment that would be occuring with or without the resources boom: returning to normal behaviour by collectively living within our means.
That was the core of RBA governor’s “Glass-Half-Full” speech last year. The boom and bubble period from about 2003 to 2008 was not normal, we were spending everything that came in the door and a bit more. The Federal Government made the situation worse by throwing tax cuts and more middle-class welfare handouts at us. From the mid-1990s to 2008, per capita real consumption growth averaged a massive 2.8 per cent and consequently, our household savings ratio fell to zero.
That was not sustainable at all. Adjusting to a more normal economy is painful for those in the front line, but there really is no alternative. Politicians on both sides can prance around and pretend otherwise, but they can’t change those fundamentals.
That we’re making those adjustments with an unemployment rate starting with a “5” is the envy of the rest of the developed world. GDP growth of 2.5 per cent will mean the labour market will remain soft this year, but more jobs will still be created than are lost.
(Just a reminder the period between 2003 and 2007 was under the Howard Government ~ The Worker)
We have had growth for over 21 years most people can't remember the bad times, is it a case of "you have to have the bad times to really appreciate the good?"