Correspondent's Notebook
Australia against economic trend
5 June 2009
News, this week, that Australia was not in a recession grabbed headlines across the country, given the state of the world economy.
Figures were released that showed the Australian economy grew by 0.4 per cent in the March quarter.
Radio Australia’s business correspondent, Karon Snowdon reports on whether the figures are just temporary blips on the recession radar or the beginning of a permanent recovery.
It was small but the Government wasn’t complaining, after all it put Australia in a league of its own.
The economy grew by point four of one per cent in the March quarter making it the only developed nation not in recession. Well technically at least according to the GDP figures released on Tuesday. A technical recession is two consecutive quarters of negative growth. The previous December quarter had contracted by 0.6 of a per cent. So how come Australia defied the odds?
The answer is probably because the Reserve Bank and the Federal Government reacted quickly to the global slowdown, interest rates were cut rapidly and Canberra pump primed with about US$40 billion, some spent some promised, to stimulate the economy. And the trade performance helped, a two billion dollar monthly trade surplus in March, superficially a good result. Especially when considering the slump in global trade.
Yet the Prime Minister was cautious. Kevin Rudd said while Australia was one of the best performing economies in the world, there would be tough times ahead, and there was no guarantee growth wouldn’t turn negative in future.
A closer look at the trade figures support that, while there was almost a 3 per cent surge in exports for the March quarter, imports slumped by 7 per cent. Those numbers are important because it means companies aren’t buying goods and equipment and business investment is way down by 6 per cent. If companies aren’t restocking their shelves its because they expect worse to come.
And that means more jobs will be lost. Unemployment is now 5.4% and will get much worse if the forecasts can be believed.
The country might not be in a technical recession but business is finding the going tough. Plus they have another factor making for a rough ride.
The Australian dollar has been particularly volatile for the past 12 months. From being close to parity with the US dollar it had collapsed to 63 cents by March. Now its been tipping over 80 cents in recent days as the US currency remains weak and investors pin their hopes on a resources led recovery on the back of an improving Chinese economy. Yet the strength of the Aussie dollar threatens to undermine exports by making them relatively expensive. On the flip side it lowers costs for importers.
The good GDP numbers for Australia surprised everyone. Most analysts haven’t changed their tune though.
They say the stats reflect a short lived reprieve driven by retail spending as consumers enjoy the 10 billion dollars or so in government handouts. And the really pessimistic ones say Australia is in recession in all but name.
Who really knows?
There’s still the multi-billion dollar infrastructure spending to come, plus Australia’s housing sector has taken nowhere near as hard a knock as others.
Even Holden the Australian subsidiary of the bankrupt General Motors escaped the fate of so many others and survives for now. While buffeted by the global recession Australia is weathering the storm better than most. But a lot of drag will be added by those forecast job losses.
And as a trading nation with a small population Australia can’t sell to itself, its fate in the longer run will be determined by how soon the rest of the world digs itself out of the recession hole, and no-one knows when that will be.
