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Australian economy remains strong

Australian economy remains strong

Staff Reporter 2 minute read

Despite widespread concern about the current problems abroad, the outlook for the Australian economy remains positive

THERE ARE many factors impacting on the Australian economy, producing different outcomes throughout.

The rapid expansion of minerals-related investment is providing a significant fillip to the Australian economy.

These projects are locked in, and will occur irrespective of events in Europe.

Ongoing strong growth in China and the rest of emerging Asia will continue to support minerals prices and the Australian economy more generally.

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“The engineering construction industry is benefiting most from this activity, but sections of other industries are as well, including some areas of manufacturing, transport, wholesale trade, accommodation, and professional and business services,” BIS Shrapnel’s senior economist Tim Hampton says.

The flip side of the minerals boom is that record high commodity prices – coupled with the poor state of many economies offshore – has seen the Australian dollar rise to post-float highs in nominal terms and near record levels in real terms.

This, in turn, has had a negative impact on Australian tourism as well as many parts of the manufacturing industry.

Other industries are also suffering due to the high Australian dollar, including retail trade, as Australian households spend more of their money offshore.

The completion of the government’s construction stimulus package is weighing heavily on non-residential building activity throughout the country. Public sector wage restraints, the reduction in a range of tax breaks, and a general reduction in departmental expenditure will also reduce activity as the government seeks to achieve and then maintain a fiscal surplus.

Households have been trying to deleverage since the onset of the global financial crisis. As a result, the household saving rate has increased to its highest level since the 1980s, housing credit growth has fallen to its lowest annual rate on record, and the level of business credit remains nearly 10 per cent below its late 2008 peak.

Business investment outside the mining industry has been weak as a result of businesses deleveraging and maintaining a cost containment/cash preservation focus since the GFC.

This weak investment has had a flow-on impact on those industries servicing that investment.

The negative news coming out of Europe and the United States has weighed heavily on consumer and business confidence. It has also encouraged creditors to tighten lending standards.

As such, Mr Hampton says private dwelling and non-dwelling building activity has been very low for some time. This under-investment has created pent up investment demand, which will drive activity from late this year provided the required funding is available and consumer and business confidence does not take another hit.

Australian economy remains strong
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