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. He said, “Today’s national accounts show the Australian
economy continues to grow in the face of significant headwinds, both international and domestic. It’s a difficult time for global economies,
with Singapore, Sweden, Germany and the United Kingdom all having negative economic growth
in their June quarters. But what this number shows is the resilience
of the economy and a repudiation of those who sought to talk it down.” So basically, because Australia is doing better
than some other countries, there’s no need for concern. Yeah, right! 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. She said, “The slowdown in the economy has been remarkable
— this time last year the economy was growing well above trend at 3.3%. Now annual growth has more than halved to
1.4%. Overall private sector demand was flat in
the quarter, with both housing construction and business investment falling. The household sector as well remains under
pressure, with weak income growth and the earlier fall in house prices weighing on consumer
spending.” 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.” Chief Economist at RBC Capital Markets, Su-Lin
Ong, also spoke of these figures. She said, “This is the lowest level of saving since
2007 and suggests a reduced buffer for consumption going forward with some risk that a likely
deterioration in the labour market prompts some rebuild in precautionary saving.” 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, “I mean, we’ve been here now for 12 years
and the last 12 months have probably been the most difficult by way of customers not
spending. You know, rather than two people getting a
bottle of wine, they are getting a glass of wine each — that kind of thing. They are thinking twice about where their
money is going. At one point, I thought we were going into
a recession to be honest, but I’d say we’re somewhere before that. Very weak… it doesn’t look great from a
business point of view.” 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…