In The Press   PAGE 1

Page 1 | Page 2 | Page 3 | Page 4 | View All

World Bank slashes global growth forecasts

19th January, 2012

The World Bank’s biannual Global Economics Prospects 2012 report forecast that the global economy would expand 2.5 per cent in 2012 and 3.1 per cent in 2013, after growing at 2.7 per cent in 2011. These forecasts were paired with a warning of a recession worse than the 2008-9 global financial crisis, particularly if the European sovereign debt crisis does not improve. High-income economies are forecast to grow only 1.4 per cent this year, largely owing to a 0.3 per cent contraction in the eurozone. However, factors that weaken the international business cycle (such as the Reserve Bank of Australia’s independent administration of monetary policy and Australia’s reliance on the Asia-Pacific regional business cycle) have placed Australia in a far better position than Europe and the United States. Acting Treasurer Bill Shorten said, “Australians can be confident in our strong economic fundamentals: we've got solid growth, contained inflation, low unemployment and very low debt.'' However, Australia will undoubtedly be affected by fluctuations in the global economy. Movements in global financial markets will affect Australian business and consumer confidence. World trade, a major driver of global growth, is also forecast to slow to 4.7 per cent growth this year compared with an estimated 6.6 per cent in 2011. Further, commodity prices are forecast to fall by an estimated 8.9 per cent, which will further hurt Australia’s exports.

Unemployment rate remains steady but signs of weakening labour market

22nd January, 2012

The Australian Bureau of Statistics (ABS) released its latest domestic unemployment figures for the month of December 2011, which shows the unemployment rate steady at 5.2 per cent. Whilst low by historical standards and still exceptional when compared with the rest of the developed world, the impressive headline figure masks a weakening labour market which has not been immune to the ongoing global economic malaise. Whilst the seasonally adjusted unemployment rate remained unchanged from November 2011, the economy actually shed 29,300 jobs in December, surprising economists who had predicted a net increase of 10,000 jobs that month. Part time employment fell by 53,700, which was only moderately offset by the creation of an additional 24,500 full-time jobs. Yet at the same time, the ABS reported that the number of unemployed persons actually decreased by 3,800 people in December. The explanation for this, and also for why the unemployment rate remained unchanged despite a net loss in jobs in the Australian economy, is that the participation rate fell by 0.3 per cent to 65.2 per cent in December 2011. As the unemployment rate represents the number of people out of work but actively seeking employment, a fall in the participation rate, ceteris paribus, translates to a lower unemployment rate. Invariably, a large portion of people who no longer participate in the labour market join the ranks of the hidden unemployed¸ which are not captured by the official unemployment statistics. In actual fact, Australia’s labour market ended 2011 weaker than it had been at the beginning of the year, where the unemployment rate stood at 5%. 2011 marked the worst performing year for the Australian labour market since 1992, incidentally the time of Australia’s last recession. Weak domestic consumer sentiment coupled with ongoing uncertainty in the global economy (exacerbated by a lack of progress in addressing the European sovereign debt crisis) have been the main contributors to Australia’s weakening labour market, with the retail and banking sectors being hit especially hard. And the rest of 2012 is looking only bleaker, with UBS (a major investment bank) predicting that Australian banks are poised to cut as many as 7000 jobs in the next 2 years.

Australia's growth rate slows and unemployment rises

8th September, 2011

The Australian economy grew by a mere 1.8 per cent over 2010-11 and unemployment increased to 5.3 per cent in August 2011. This news comes on top of the poor unemployment performance in the US (with unemployment remaining stubbornly above 9 per cent over 2011) and disappointing growth results in advanced economies.

However, the poor economic growth rate for 2010-11 is partly explained by the impact of the Queensland flooding which caused negative growth of -0.9 per cent in the March quarter of 2011. In the June quarter of 2011, growth rebounded to 1.2 per cent, or 4.8 per cent in annualised terms, suggesting that Australia is not in danger of slipping into recession in the short term.

However, Australia's unemployment rate has steadily increased over 2011, rising from a low of 4.9 per cent in April 2011 to reach 5.3 per cent by August 2011. Part of this might be explained by a reduction in the level of hidden unemployment, whereby persons previously discouraged from seeking work have re-entered the labour market. It may also be that, due to the turmoil on global financial markets, business confidence has fallen prompting firms to delay hiring decisions.

Australia's income inequality improves

5 September 2011

The Australian Bureau of Statistics (ABS) has released its latest analysis on household income and income and wealth distribution in Australia for the 2009-10 financial year. Surprisingly, the latest set of statistics indicates that the commodities boom in recent years has not necessarily produced the positive surge in household incomes across Australia to the extent initially forecast. In real terms (adjusted for inflation), average disposal household income per person fell slightly from $859 in the 2007-08 financial year, to $848 in 2009-10, although this could be a reflection of the moderate economic slowdown in 2009 following the global financial crisis. Average household incomes amongst the poorest and richest 20% of households remained relatively unchanged at $429 and $1,704 per week, respectively. The ACT continued to command the highest average household incomes in Australia at $1,101 per week, reflecting its high proportion of well-paid government sector jobs. Unsurprisingly, household incomes were above the national average in the resource rich states of Western Australia ($966) and the Northern Territory ($938), which have been the main beneficiaries of Australia’s booming terms of trade.

In terms of income distribution, the Gini-Coefficient fell slightly from 0.336 in 2007-08 to 0.328, indicating mildly reduced income inequality, although this figure is still significantly higher than the earlier part of the decade. This reduction could be attributed to the government’s set of tax cuts for middle income earners in successive budgets during the latter half of the 2000s decade, minimum wage increases in recent years exceeding the CPI and relatively stagnant incomes amongst high income households following the GFC. However, to put into perspective the current extent of income disparity in Australia, the percentage share of total household income which flows to high income households is 40.2%, whilst only 10.1% goes to bottom income households. The distribution of wealth in Australia is even more unequal than the distribution of income, and despite only moderate increases in wealth inequality in the past 2-3 years, the poorest 20% of households still own but a mere 1% of total household wealth (with average net wealth $31,829 per household), compared to the wealthiest 20% who account for 62% of total household wealth in Australia (or $2.2 million per household). All in all, whilst income and wealth inequality in Australia has remained relatively stable since 2007-08, it still remains high by historic standards and when compared to the average in the OECD.

Global financial markets plummet on concerns over sovereign debt

11 August 2011

Increasing concerns about the sustainability of government debt in Europe and the US sent global share markets plummeting in August 2011, losing around 20 per cent of their value compared with their 2011 highs. The financial panic appears to have been triggered by a number of separate concerns about the levels of government debt in the US and Europe. Concerns about the sustainability of European debt levels have been mounting for a while. In May 2010, both the EU and the IMF were forced to issue a bail-out package for the Greek economy, followed by bail-out packages for Ireland in November 2010 and Portugal in May 2011, all on the condition that the recipient economy implement a package of “austerity” measures (ie, tax increases or spending cuts to reduce the size of the budget deficit). These concerns resurfaced in June 2011 when the Greek government indicated it will need a second bail-out, and a rescue package from the EU and IMF was announced again in July. Also in July, it appeared that the sovereign debt crisis had spread to Italy and Spain as investors’ concerns about their high levels of sovereign debt meant that the Italian and Spanish governments were facing prohibitively high interest rates on government debt; the European Central Bank responded by announcing that it would “actively” buy up Italian and Spanish government bonds (effectively financing Italian and Spanish debt).

Then, on 29 July 2011, the US released its growth statistics for the second quarter of 2011, and downgraded its growth forecast to 0.4 per cent (down from an earlier estimate of 1.7 per cent). This news triggered the beginnings of the largest fall in global share markets since the collapse of Lehman Brothers in 2008, fuelled by the European Debt Crisis and concerns that the global economy was in danger of slipping into a second recession. At the same time, in the US Congress debated an amendment to raise the US debt ceiling and avert a US default on its debt. Though a compromise deal was reached, the fact that the US came so close to default (both through the political impasse and the size of the US budget deficit) caused Standard and Poor’s to downgrade the credit rating of the US from AAA to AA+ on 5 August 2011.

The growing concerns about the debt levels of the world’s largest economies also reflect the danger that the global economy may be heading into a “double-dip” recession. If growth levels continue to fall, there will be very little room for governments worldwide to provide economic stimulus: the current debt crisis would prevent further expansionary fiscal policy and monetary policy is already high expansionary with interest rates set close to zero in all major advanced economies. As a result, on 9 August the US Federal Reserve announced that interest rates would close to zero for the next two years, signalling a continuation of the current macroeconomic stance over the medium term.

Increasing signs of a slowdown in the Australian economy

11 August 2011

Australia’s unemployment rate rose to 5.1 per cent in July 2011, up from 4.9 per cent in June. Although this is only a modest increase, it marks the first time that unemployment has risen since October 2010, and comes on the back of other data which suggests that the Australian economy might be slipping back into an economic slowdown. In the March 2011 quarter the Australian economy contracted by -1.2 per cent compared with the December 2010 quarter: the first quarter of negative growth since December 2008, which was in the midst of the global financial crisis. However, part of this decline can be explained by the effects of the recent floods in Queensland, which have flow-on effects to exports (particularly mining exports: a flooded mine takes time to drain and while flooded cannot generate any export supply). Nevertheless, there are also signs that growth has slipped in the June quarter, with retail sales (a rough indicator of consumption) falling in the months of March, May and June 2011. Despite this gloomy news, Australia’s economic outlook is also affected positively by the continued rise in the terms of trade and forecasts of strong export performance, particularly in the commodities sector. All this provides increasing evidence that Australia is experiencing the effects of a two-speed economy. While investment in the mining sector and mining exports are the main drivers of growth, falling levels of consumption and business confidence in other areas of the economy reflect a decline in other industries. The Reserve Bank of Australia forecasts that consumption will remain subdued over the next few years as households maintain a higher level of household savings compared with the savings rate in the 2000s, and so if Australia is to avoid slipping into recession, it must ensure that the level of business investment and export growth is sufficient to counter the effects of falling consumption levels in the domestic economy.

Inflation reaches 3.6 per cent in June 2011

27 July 2011

Australia’s inflation rate rose to 3.6 per cent in the June quarter of 2011, up from 3.3 per cent in March. This represents an increase in cost-push inflationary pressures and the continuing effects of higher prices resulting from the cyclones in Queensland in late 2010 and early 2011. The effects of the cyclones on prices is clearly a once-off inflationary spike, and can be seen in the fact that the underlying inflation rate for July 2011 was 2.7 per cent and so within the target band. Yet the inflation rate remains towards the upper end of the Reserve Bank’s inflation target despite the evidence of a slowing domestic economy. Much of this increase in due to cost-push inflation through increases in fuel and utility prices. The higher level of inflation presents a policy challenge for the Reserve Bank. As evidence grows that the level of economic growth in Australia is slowing over the first half of 2011, the Reserve Bank may be faced with a policy dilemma if inflation continues to rise of whether to implement contractionary monetary policy to reduce inflation or whether to support to the domestic economy by maintaining or lowering the cash rate.

US unemployment rises to 9.8 per cent

4th December, 2010

In yet more confirmation of the continued sluggishness of the US economy, the unemployment rate actually increased to 9.8 per cent in November and only 39,000 jobs were added. Despite jobs being added to the economy, the increase in the labour force participation rate – which reflects the amount of people either working or actively searching for work – increased by a proportionately larger amount, therefore increasing the overall unemployment rate. The disappointing news compares unfavourably to October, in which a significantly larger 172,000 jobs were added to the economy. The increase in the US unemployment rate follows three consecutive months in which unemployment has held steady at 9.6 per cent. In recent months, political debate has raged in the US over what economic policies are most suitable during the current economic climate. While the Obama Administration and Democrats have called for the need to extend unemployment benefits for millions of unemployed Americans and to extend tax cuts for lower and middle class households, Republicans have called for a continued extension of tax cuts for all Americans, including wealthier Americans.

Economist predicts that India’s economic growth will soon outpace China

3rd December, 2010

According to global economist Nouriel Roubini, India’s rate of economic growth will overtake that of China within the next decade. Roubini claims it is possible that India will soon start to experience double-digit rates of economic growth in excess of 10 per cent, while China’s growth may moderate to around 8 per cent. In particular, India’s reliance on domestic demand as a large contributor to growth may be advantageous over China’s export-reliant growth, as China depends significantly on US demand for exports to fuel its own economic growth. However, India must also battle inflationary pressures that have been building for several years. Overall inflation reached 8.58 per cent in October, prompting the Reserve Bank of India (RBI) to raise interest rates by 25 basis points – the sixth time it has done so this year. A report prepared by analysts at Morgan Stanley also predicted that India’s GDP growth could surpass that of China by as early as 2013.

Bad weather conditions threaten Australian economy

3rd December, 2010

Many commentators are voicing fears that significant rain in the east but persistent drought in the west of Australia could wipe up to $6 billion off Australian grain harvests. Significant rainfall in some areas has a negative impact in some circumstances by delaying harvesting and ruining some crops. Some projections estimate that NSW and Victoria could suffer losses of approximately $1 billion to wheat, barely and canola crops. In the country’s west, the continuing drought is predicted to reduce farm industry incomes by $3 billion. Statistics released recently by the Australian Bureau of Statistics (ABS) indicate that Australian economy grew by 0.2 per cent for the September quarter. However, this figure is based on the assumption of ideal weather conditions. Agricultural economists have therefore suggested that those forecasts have to be downgraded by as much as one-third due to the adverse weather conditions. Global grain prices have increased this week due to the fear that persistent rain in Australia could ruin more crops and create a shortage.

Page 1 | Page 2 | Page 3 | Page 4 | View All