The two-speed economy is alive and well in Australia but the concept is far more complex than traditionally depicted.
WHILE Australia’s politicians focus on this month’s election campaign, to the detriment of most substantive issues, the Reserve Bank board was left to evaluate the state of the economy at its monthly meeting.
The key decision facing the reserve was whether to adjust Australia’s official interest rate, based on the board’s assessment of economic prospects.
In broad terms, the Australian economy is enjoying solid growth, helped in large part by investment in resources and construction projects in Western Australia and Queensland; hence the common perception of fast-growing resource states and struggling rust-belt states.
The reality is that sectors within each state are growing at vastly different rates.
The reserve summarised the overall picture as follows: “With growth likely to be close to trend, inflation close to target and the global outlook remaining somewhat uncertain, the board judged (the current) setting of monetary policy to be appropriate,” governor Glenn Stevens said in one of his very carefully worded statements.
Looking closer at his statement, it is interesting to see how Dr Stevens characterises issues that many businesses see as a major problem.
“Consumption spending is recording a modest increase at present, with households displaying a degree of caution,” he said.
Compare that to the comments from the Australian Retailers Association, which said the latest data from the Bureau of Statistics showed a “dismal” 0.2 per cent growth for the second month in a row and reflected stories of poor trade from retailers across the country.
“We’re already getting emails every day from retailers across the country saying this is one of the worst years of trade they can remember,” ARA executive director Russell Zimmerman said.
The data for WA are even worse than for the rest of the country, with WA retail sales unchanged in June. This continues a weak trend over the past six months.
Another issue the reserve addresses, albeit obliquely, is bank-lending practices.
“Business credit has stabilised, though credit conditions for some sectors remain difficult,” Dr Stevens stated.
That is presumably a reference to the small business and property sectors, where many people bemoan the near impossibility of securing credit.
Dr Stevens’ wording is actually a little stronger than the reserve has traditionally employed on this subject.
In a report on business finance completed in March, the bank concluded that: “small businesses in most industries have had tighter but still reasonable access to funds throughout this financial crisis, with property companies being a notable exception”.
A third contentious topic tackled by Dr Stevens was the state of the labour market.
“The labour market has continued to firm gradually, and after the significant decline last year, growth in wages has picked up a little, as had been expected,” he said.
That may be the reserve’s macro perspective, and from that height its comments look about right, but what about the view from on the ground?
Consult Australia’s annual engineering skills survey concluded “a skills shortage of engineers definitely still exists in the consulting industry”.
“Despite the downturn following the GFC, the shortage is back just as strong as ever, demonstrating that the global shortage of engineers is a systemic problem.”
Three quarters of firms participating in the survey reported that they are experiencing critical shortages.
The Association of Professional Engineers, Scientists and Managers Australia reached a similar conclusion, with 61 per cent of the 700 engineers participating in its recent survey indicating there was a skills shortage in the industry.
APESMA believes the problem stems from lack of training and little continuity of work, and says part of the solution is to ensure more engineering work for big projects is completed in Australia rather than sent offshore.
Steel fabricators express similar frustration, with most of the work on big resources projects being awarded to workshops in Asia.
These examples highlight the complexity of policy making in contemporary Australia, with some sectors struggling while around them affluence appears in abundance.