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The sky isn’t falling: economy chugs away despite disasters by Glenn Dyer and Bernard Keane Shock horror — the sky’s still up there, life as we know it in the wonder economy continues. GDP contracted 1.2%, after the 0.7% rise in the December quarter and 0.2% improvement in the three months to September. The contraction came from the slump in coal production and exports, as well as a smaller fall in iron ore shipments: and the blame can be sheeted home to the weather, not to demand from China, India or South Korea, or Japan for that matter, which is continuing to drive our terms of trade higher. But there were more than a few signs of growth in the domestic economy — a rise in the terms of trade offset the contraction in volume terms to produce a flat outcome in real gross income for the three months: that is probably the more important of the measures. And household consumption was positive, while the savings ratio jumped noticeably. The key employment sectors of retail and construction were both positive — a good outcome especially for the latter, which has seen a near-collapse in housing construction in recent months. The result’s a painful one for some parts of the economic commentariat. Didn’t Goldman Sachs and their team of economists look a right bunch of dopes after a breathless story on the Sydney Morning Herald website this morning warned of the sharpest slowdown “since Gough Whitlam was prime minister” with a prediction of -2% in the first quarter of the year, a big turnaround from the 0.7 per cent expansion in the final quarter of 2010. “Though the Reserve Bank has declared its intention to look through flood disruptions, the size of the likely GDP contraction implies that it has either miscalculated its size or overestimated the strength of the underlying economy,” Goldman Sachs had warned, in words that might better apply to themselves. Comsec’s Craig James likewise had us on the Eve of Destruction: ”So unquestionably poor is the news it raises real doubts about the true state of the Australian economy. The Reserve Bank holds to the belief that the economy will rebound later in the year, but you don’t get a sense of that from the data.” James had conflated the huge one-off impact of the summer’s natural disasters and their impact on the balance of payments with other (and quite real) issues around the weak lending data and building approvals for April. Alas, the ABS didn’t show up for the end-of-the-world party. “Flooding which began in late December 2010 combined with cyclones in both Queensland and Western Australian have had a significant impact on the March quarter activity. Despite the fall in GDP volumes there was an increase of an increase of 0.3% in Real gross national income driven by an increase of 5.8% in the terms of trade on the back of stronger commodity prices: “The main detractors to expenditure on GDP were Net exports (-2.4 percentage points) and Inventories (-0.5 percentage points). Private gross fixed capital formation (0.7 percentage points) was the largest positive contributor. From an industry perspective the main detractor to GDP was Mining (down 6.1%) with a 0.6 percentage points detraction, while Manufacturing (down 2.4%) and Agriculture (down 8.9%) both detracted 0.2 points from GDP.” Nothing of any surprise there after the record fall in trade outlined in yesterday’s balance of payments for the March quarter. The contribution from investment of 0.7% tells us the mining boom is alive and very well. Even household consumption was positive — so much for the two speed economy and excessively cautious consumers. That rise in household consumption was achieved despite the savings ratio rising to 11.5%. The domestic economy is running sluggishly, but it hasn’t stalled, as some would have had us believe yesterday and this morning. What will everybody say if the economy bounces back with a 1% rise in GDP in the current quarter (remember, today’s result is going back more than three months in time). It will pay to read tomorrow’s April trade figures, they could very well give us an early clue. Back to the usual Rate Rise Looms as a headline, presumably. Nonetheless, the hit to growth is much higher than Treasury initially expected, and bigger than it calculated in the Budget. The Opposition chorus that the blowout in this year’s deficit reflects Labor’s incompetence looks dumber and dumber with each piece of evidence that the cyclones and floods belted the daylights out of even the booming mining industry up in Queensland. In light of these figures, Wayne Swan’s fiscal juggling act on budget night — keeping the ping-pong ball of short-term growth and the bowling ball of long-term growth in the air at the same time — looks better than it seemed at the time.

INDEED !

Aside from things OUTSIDE of government control (SOME food, fuel and energy prices) the WHINGERS have never had it so good

The global economy is still far from stabilised, this Australian Fed Gov couldn`t manage the lunch money for a family of four, don`t get too cocky.

mavisdavis wrote on Jun 2^nd, 2011 at 8:18pm:

The global economy is still far from stabilised, this Australian Fed Gov couldn`t manage the lunch money for a family of four, don`t get too cocky.

buzzanddidj wrote on Jun 2^nd, 2011 at 2:22pm:

Stimulus packages can save Australia: IMF Phillip Coorey | March 20, 2009 - 5:15AM THE outlook for the international economy has been downgraded significantly, raising fears that Australia's already bleak unemployment, revenue and growth forecasts will deteriorate further. The latest outlook published by the International Monetary Fund last night says the global economy is expected to contract this year for the first time in 60 years. It also backs the stimulus packages introduced by many governments, including the Commonwealth, but says recovery depends on further action. The IMF says advanced economies will suffer "deep recessions" this year, and forecasts growth in the US, Europe and Japan will be slower than it had predicted. The Government will take political comfort from the IMF's view that recovery depends on further policy actions along the lines of those already taken in Australia, including measures to buttress the banks and stimulate the economy with packages equivalent to 2 per cent of GDP The Opposition stepped up its criticism of the Government's handling of the economy. "Every step you have taken has made things worse," said the Opposition Leader, Malcolm Turnbull. "Your incompetence is a disgrace." He likened the Australian Business Investment Partnership, or so-called Ruddbank - designed to plug funding gaps in commercial property - to a return to the Labor state bank fiascos of the 1980s that exposed taxpayers to failed commercial property ventures. "Talk about a dog returning to its own vomit," Mr Turnbull said. Mr Rudd said the IMF figures would expose his opponent as existing "in a universe completely disconnected with what is actually going on in the global economy and its roll-on consequences for Australians, their jobs, their families and their communities". http://www.brisbanetimes.com.au/news/national/stimulus-packages-can-save-australia-imf/2009/03/20/1237055042624.html Australia leads global economic recovery Washington correspondent Kim Landers Thu Apr 22, 2010 A new report from the International Monetary Fund (IMF) says Australia is one of the leaders as the global economy recovers from a severe recession. The IMF has released its twice yearly report on the world economy as Treasurer Wayne Swan prepares to attend meetings of the G20 and the IMF in Washington. The IMF says that after enduring what became known as the Great Recession, the world's economy is undergoing a rapid, but patchy, recovery. The chief economist at the International Monetary Fund in Washington, Olivier Blanchard, says the global recovery has evolved better than expected. But he also says new and formidable challenges are looming. "Achieving strong, sustained and balanced growth will not be easy," he said. "It will require more work, mainly fiscal consolidation in advanced countries, exchange rate adjustments and rebalancing of demand across the world." The IMF report says the recovery in major advanced economies will be "relatively sluggish" and the United States is off to a better start than Europe and Japan. However Australia has been singled out for praise. "Australia and the newly industrialised Asian economies are off to a strong start and will likely stay in the lead," the report says. http://www.abc.net.au/news/stories/2010/04/22/2879454.htm IMF praises Australia Monday, May 2, 2011 On the eve of the Reserve Bank board meeting to consider interest rates, Australia has been held out as a paragon of economic virtue While the strong Australian dollar flattens part of the economy, the International Monetary Fund has only praise for policymakers' hands-off approach. The IMF says Asia should follow Australia's example. http://www.abc.net.au/lateline/business/items/201105/s3205880.htm

Buzz

You forgot to thank liberals. I will. Thankyou liberals for giving us such savings and surplus to use in a disaster and stave off a little of the sqandering and incompetence of labor.

Come back real soon so we can fix labors stuffups once again.

The budget has not received an adequate response from Tony Abbott and his shadow cabinet  because the opposition is unable to respond with any credible alternatives.....We have seen Hockey flounder and bluster in Treasury with little support, blaming Andrew Robb and Tony Abbott for there failure to get the numbers right.....Shadow Environment spokesman Christopher Pane is ineffective in his portfolio and is not capable of selling the Coalitions dog of an environment policy....We have seen the shadow communications - finance - treasury - Environment Minister Malcolm Turnbull pull the rug from under them all.....No wonder the budget has not received any attention!!!

:)

progressiveslol wrote on Jun 2^nd, 2011 at 8:52pm:

Buzz You forgot to thank liberals.

I'll pass your protestations  thoughts on to the IMF

progressiveslol wrote on Jun 2^nd, 2011 at 8:52pm:

Buzz You forgot to thank liberals. I will. Thankyou liberals for giving us such savings and surplus to use in a disaster and stave off a little of the sqandering and incompetence of labor. Come back real soon so we can fix labors stuffups once again.

buzz will never ever give the Libs credit for that.. too miserable..

however have we anything in the pot to keep the stim going??? we are still stimulating different parts of the country to keep it going..

mind you one more downturn and its by.by. economy false or otherwise..

I just dont trust this mob its alright printing up tall tales like buzz does but I dont buy it..the IMF said 12 months ago the world was over the FC.. lol.. then we looked around and look whats happened.. its still in crisis now  Europe has food poisoning that will cripple certain nations..especially Spain that can ill afford this.

If you go off the usual offenders on internet forums, we're always 10 seconds away from the sky falling and crashing to earth taking us all with it.

"They've ruined the economy!!!!"
"We're f-cked now!"
"We're being invaded!"
"Tharr takin' our jawbs!"
"Society is rapidly going down the drain!"
"Another slap on the wrist!"
"Blah blah blah blah"

cods wrote on Jun 2^nd, 2011 at 9:16pm:

progressiveslol wrote on Jun 2nd, 2011 at 8:52pm: Buzz You forgot to thank liberals. I will. Thankyou liberals for giving us such savings and surplus to use in a disaster and stave off a little of the sqandering and incompetence of labor. Come back real soon so we can fix labors stuffups once again. buzz will never ever give the Libs credit for that.. too miserable.. however have we anything in the pot to keep the stim going??? we are still stimulating different parts of the country to keep it going.. mind you one more downturn and its by.by. economy false or otherwise.. I just dont trust this mob its alright printing up tall tales like buzz does but I dont buy it..the IMF said 12 months ago the world was over the FC.. lol.. then we looked around and look whats happened.. its still in crisis now  Europe has food poisoning that will cripple certain nations..especially Spain that can ill afford this.

Well thanks to labors inability of foresight, come the next crash, which is likely, we are in a pickle.

This is not the right time to tax our outgoing products. Not the right time to scare the populous. Not the right time to introduce economy changing taxes.

After all, the carbon tax does nothing but put a cape on the super hero country of Australia. We dont need a superhero right now. We need common sense. Please come back liberals. We need you more than ever.