Is the party over for Australia’s mighty economy?

Credit where credit is due – 25 years of continuous economic growth – is a record that any country would be proud of. Take a bow Australia. 

But realistically it’s a backward looking number based on some good economic reforms last century and a good bit of luck for the Lucky Country. The trick now is to keep that growth going and that’s starting to look decidedly difficult.

Our major economic tool this century is to hope that reforms forced on the rest of the world, post GFC and fuelled by world awash with money, will kickstart the bigger economies and in turn sweep Australia up in its backdraft. Good luck on that. 

But let’s not be too negative, after all a lot of the Australian workforce wouldn’t even remember the last recession back in 1991. Australia has muddled through before and let’s hope it can do it again. 

Muddling through

The economists down at CommSec are still upbeat about the future, pointing out that he June quarter growth number of 0.5 per cent lifts annual growth from 3.0 to 3.3 per cent, slightly above the trendline.

What is worrying is that a lot of that growth is bring generated by the Government investment, up 0.7, and and government spending, 0.3 per cent. This can’t last unless a lot of the stalled Budget cuts actually get passed through the Upper House. 

The rest of the numbers are OK including household spending and dwelling investment, but key drivers like business investment and non-residential construction are missing in action while the export scene is still lagging badly from low commodity prices. 

Despite scepticism down at the share market, business is still doing well on sales, profits and dividends but it all seems to be generated by more and more cost-cutting. It amazes me that this can continue.

While everyone was backslapping themselves on what a great little country Australia was here’s some economic numbers that are cause for concern.

Consider this:

• The nation’s current account, the broadest measure of of our trade and financial position, rose from a deficit of $14.9 billion to a deficit  of $15.5 billion in the June quarter.
• Net foreign debt rose from $1021 billion to a record $1045 billion in the June quarter.
• Net exports continues to be a drag on Australia’s well-being and will continue to do so until farming resumes its strong uptrend and more income starts to roll in from Queensland’s big LNG projects.

Because jobless numbers, and forward job advertisements, remain strong consumers are still confident enough to keep buying houses/apartments and new cars (mostly SUVs) but it all seems to be slowing. 

 But with the Reserve Bank running out of options on the interest rate front and the damagingly high Aussie dollar now captured by events in the United States, let’s hope the Australian economy doesn’t receive some sudden external shock. 

I don’t think we’re in good enough shape to handle it. But then again we might just muddle through!

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