Despite what the Treasurer might say, Australia’s economy has slowed to its slowest pace since the year 2000. GDP expanded by 0.5% over the June quarter and 1.4% over the year, which is equal to the worst annual growth rate since the aftermath of the global financial crisis in the September quarter of 2009. To find a result which is worse than this, you have to go all the way back to the year 2000 when the Howard Government introduced the GST. If you take this one-off event out of the picture, the economy is the weakest it's been since the early 1990s. Treasurer Josh Frydenberg insists that the fundamentals of the Australian economy are still strong. I know the Treasurer’s job is partly to keep the Australian public calm and collected, but he’s also responsible for telling the whole truth.
Senior economist at ANZ, Felicity Emmett, said the recent figures show that weakness in the economy has become more wide-ranging.
Household spending is still on the slide. Both household consumption spending and household income to saving ratio are heading downwards despite rising disposable incomes.
Chief Economist at Westpac, Bill Evans, spoke of the issue of consumer spending. He said,
“But the key parts of the economy, such as business investment, dwelling construction and the consumer, are really off. Today's number indicates, in a per capita sense, the economy went backwards in the last 12 months. But the fundamental problem for the economy is weak wages growth and that's what's weighing on the consumer. And, as the consumer becomes more cautious, so business becomes more cautious in terms of their investment plans.”
If we look at some anecdotal evidence, the real economy looks fairly bleak. At the Almond Bar restaurant in Sydney, empty tables are a sign of the times. A year or so ago, the popular Syrian eatery would have been full. Owner Carol Salloum spoke of the recent slowdown.
The Treasurer boasted of “the strong economy” during the election campaign. It then changed to “the economy is sound”, and now that the economy is struggling, it changed again to “the fundamentals are strong”. Ms Salloum commented,
“I can't see it. Nothing seems 'sound' or 'strong' from our point of view.”
Martin North of Digital Finance Analytics has long warned about the dangers of Australia’s high household debt levels and the increase in mortgage delinquencies — “If unemployment starts to rise, that will accelerate”. He’s also worried about the structure of the Australian economy with many new jobs not being “hi-tech, export-oriented”, but instead being part of “the bedpan economy”. That is, labour intensive human services such as aged care, community care and health care,
“Those jobs are not necessarily productive jobs, they are important jobs but they won't tend to deliver high productivity growth. My question is where is the next generation of value in the economy going to come from?”
He also spoke of the rising threat of a bad Brexit, a US-China trade war, and a falling Chinese economy. He said,
“Any one of those could play us into a GFC 2.0. And if that happens, then essentially all bets are off. We are going to see very high levels of unemployment. We're going to see a lot of households defaulting on their mortgages, and that would have a spillover effect on the economy. That would hit the banks and take us into a very dark corner, in my view.”
Jim Stanford, economist and director of the Centre for Future Work at the Australia Institute, spoke of the ongoing economic issues,
“The last six years has been the worst period for wages growth since the Second World War. Wages have grown so slowly, it's undermined consumption. It's undermined job creation, and it's contributed to Australia being the most indebted consumers of almost any country in the world. The reality is that the price of many household essentials has been rising much faster than wages. If most of your income goes on the basic necessities, your cost of living will be likely to have risen far more than your wages and your standard of living will be going backwards. The mining and construction sectors have gone from boom to bust and right now we have very little of the hi-tech, export-oriented sectors we need to drive growth.”
Of course, high house prices go a long way to explain why consumers aren’t spending. Soaring property prices have created a huge debt burden. By most measures, Australia's household debt is one of the highest in the world, second only to Switzerland. It’s not exactly a badge of honour.
And that’s the state of the Australian economy — A pile of debt, frugal consumers, and a Treasurer who doesn’t want to admit the real economic…
#australianeconomy #economiccrisis #houseprices
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