04/06/2015 - 13:38

Luck running out as rebound stalls

04/06/2015 - 13:38


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If you think you’re working harder to earn less then you’re right, because that’s one of the less pleasing aspects of Australia’s latest economic health check.

If you think you’re working harder to earn less then you’re right, because that’s one of the less pleasing aspects of Australia’s latest economic health check.

And although the latest figures were praised by Treasurer Joe Hockey, they contained a reminder that all’s not well in the lucky country.

Another message in the March quarter measure of Australia’s gross domestic product released on Tuesday was that the states doing the heavy lifting for the rest of the country remain the resources exporters – WA and Queensland.

Iron ore, coal and gas exports have never been more important to Australia; and even with prices for those commodities down on where they were a year ago, it is resources that are carrying the rest of the country – though not without some difficulty, as shown in April’s trade figures released earlier today.

According to the Bureau of Statistics, the April trade balance blew out to a deficit of $3.9 billion, the worst ever, as exports struggled against high imports with a predictable drop in the value of the dollar.

The trade figures, combined with the GDP number, lifted the lid on Australia’s weakening economy and raised the question of what is it that south-east Australia actually does, apart from bludge off the exports generated in the west and the north, as well as sucking in imports and a disproportionate share of the GST generated by WA consumers.

What happened on Tuesday was a classic piece of government spin, with Mr Hockey declaring the March quarter GDP growth rate of 0.9 per cent a “terrific number” because it implied annual growth of 2.3% which, without the spin, is what unbiased observers call a sub-average growth rate.

Gilding the lily is, of course, the job of politicians and it has taken two days for the real significance of the March quarter accounts to sink in; especially the fact that while the economy did indeed grow by 0.9 per cent, it was largely as a result of exports from WA and Queensland and had nothing to do with income levels of the average worker.

Buried in the detail, and hidden by the treasurer’s bombast, was the nasty fact that real incomes (what you and I earn get to spend in the shops) fell by 0.2 per cent in the March quarter.

In effect, Australia is trapped in an income recession, if not a statistical recession, as measured by economists.

As Macquarie Bank said in a note to clients yesterday, Australians are “producing more and working harder but earning less”.

Citi, another investment bank, picked up the theme that much of the detail in the GDP report was worrying.

“Domestic activity has been stuck in second gear now for two years,” Citi said. “The economy just isn’t rebalancing fast enough.”

That comment about rebalancing is a reference to the end of the construction phase of the mining boom and the shift to an income-generating phase, which is supposed to be accompanied by expansion in the non-resources sectors such as manufacturing and services.

Perhaps the non-resources sectors will rebound at some stage, but if it doesn’t come soon then the rest of the country will become ever more reliant on resources exports from the resources states.

In a way that’s probably something to make people living in WA and Queensland feel proud of their contribution to the national economy.

The problem is that the rest of the country doesn’t seem to (a) understand what’s happening, or (b) appreciate that without resources exports Australia really would become a second-class player in the Asia Pacific region.

Rather than trying to stifle the resources sector at every turn by opposing new mining and oil projects, it would be helpful if the rest of the country joined the only game where Australia has a natural advantage and that’s from selling goods and services to the manufacturing giants of Asia.

Over the past 30 years, successive federal and state governments have opposed uranium mining (missed opportunity), opposed coal mining, opposed coal-seam gas development, opposed shale-gas development, and opposed onshore production of liquefied natural gas, first for the Ichthys project at Maret Island off the Kimberley coast and then at James Price Point on the Kimberley coast.

The luxury of saying ‘no’ to resources development is over because what the latest GDP numbers show is that living standards of Australians are in decline.

Not only are we working harder to produce more for less money, we are starting to dip into our savings to maintain our lifestyles or, as Andrew Charlton, an economic adviser, told the Australian Financial Review newspaper today: “Australia’s living standards are falling on a sustained basis for the first time in 50 years. This is not a short-term trend.”


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