The near term outlook for the Australian economy is relatively positive despite all the doom and gloom that is being put about by some commentators. The biggest challenge at present involves the transition from a recent heavy reliance on the biggest mining and construction boom in Australia’s history according to the Commonwealth Bank’s Director of Economics, John Peters.
Despite ongoing relatively downbeat consumer confidence, and the doom and gloom around manufacturing and mining as the Australian economy transitions from the biggest mining investment and construction boom in Australia’s history, the future of the Australian economy remains very sound.
That’s the view of one of the country’s chief economists, the Commonwealth Bank’s Director (Economics), Global Market Research, John Peters.
According to John, low inflation, record low interest rates and the sharply lower Aussie dollar can only mean good news for future economic growth and for business. Since the Aussie dollar’s recent peak of USD1.10, the currency has dived by 34% against the US dollar to around USD0.73 – and has also fallen sharply against other currencies like the UK pound and the euro.
“Consumers are not spending like they used to,” he admitted. ‘Since the global financial crisis (GFC) unfolded in 2008, they are saving for the first time in 25 years (i.e. since the early 1980s) and paying down debt.” Unemployment is hovering around 6 per cent and the lower dollar means imports such as electrical appliances and computers aren’t so cheap any more.
That said, our economy overall is in better shape than many think – or better than it might look and feel in some regions of the country, especially the mining regions of WA and Queensland.
“We haven’t had a recession for 24 years,” he said, adding that Australia largely avoided the negative impacts of the GFC through a combination of good management and good luck. A sharp reduction in interest rates by the RBA, the sharply falling dollar at the time, and the large fiscal spending package implemented by the then Federal Government (which included a financial “handout” to taxpayers and a large infrastructure building program) were all cited as the good management factors. The good luck was that Australia’s major trading partners like China and India continued to grow strongly during the GFC.
“We pretty much sailed through the GFC and did not fall into recession while the rest of the advanced economies experienced their biggest downturns since the Great Depression of the 1930s.”
John believes the economy is currently in a “transition” phase following the end of the mining boom and that, in order to get through that, other sectors need to “pick up speed”.
“We have seen the slowest growth for quite some time at around 2¼%, and we expect the economy to run at this pace for 12 months or so,” he said.
“But things are picking up,” John said. “Inflation is pretty much under control. And while we don’t see rates dropping anytime soon, we also don’t see a rate hike on the horizon.”
This is great news for small business because the steady interest rates simplify business planning and make it easier to balance the business budget.
Low interest rates also mean households and small business are not sinking all their income into their mortgages and business loans, while the low dollar means that we can be competitive in a global marketplace.
And while the resources boom appears over – affecting our two largest exports, coal and iron ore – our third largest export, education, is thriving.
John is also seeing an improvement in tourism, our fifth largest export, as the falling dollar makes domestic holidays more appealing, and makes our country more attractive for international visitors.
Meanwhile, although bank-bashing is a bit of a national past-time, on a global scale our banking system is extremely well regarded. Only nine banks worldwide have an AA rating or better, and four of them are Australian.
John will join the industry as the guest speaker at the Business Insights Breakfast at ACAPMA’s 2015 National Conference & Expo Business. This breakfast is being sponsored by the New Sunrise Group.
The breakfast opens the conference, which will be held at the Surfers Paradise Marriott Resort and Spa from September 22-25. For more information or to book a delegate pass, please visit the dedicated conference website.