The Aussie economy is set to rebound! No, these aren’t the usual positivity-driven utterances of an excessive Peter Switzer but the headline of CommSec’s chief economist, Craig James.
Adding to it all, last night when interviewing Deloitte Access Economics’ Dr. Chris Richardson (one of the country’s most respected number crunchers), I called him out on what seemed to be a more positive Richo than I saw last year. He quickly agreed that he’s much more bullish on Oz for 2017.
He also likes the international economic setting, which is driving up our resource export prices and is boosting our terms of trade for the first time in years. Chris says national income is starting to surge and any talk about an income recession has been washed away.
He sees profits rising and thinks wages will follow.
For Australia, things definitely look different, where we even produced a current account surplus!
In case you’re not economics trained or hated the subject so much that you erased it from your happy mental hard disk, the current account first looks at our trade balance — goods and services exported minus goods and service imported. It then accounts for the stuff we have to pay back to overseas for money we receive from foreigners. And this includes interest, profits and dividends.
And because we have a small population and one of the best-growing economies in the world with a great supply of natural resources, we need other countries’ savings, which comes to us as foreign investment.
But we have to pay it back. When I was a young economics student, I learnt that today’s deficit on the current account was tomorrow’s credit on the capital account. This latter account simply measures the loans and foreign investment that comes in to make up for our small pool of savings.
Some experts say we are profligate and don’t save enough. However, that’s only one part of the story. We do lack people and have lots of opportunities.
This good news of surging national income comes with speculation that we’ll soon see our first current account surplus since the middle of the 1970s!
UBS economist, Scott Haslem, thinks this current quarter will deliver the surplus. "The more recent commodity spike should see the trade surplus rocket to around $4-5 billion in quarter one, or 3 per cent of GDP. For the current account, while there is a one-third income offset as higher profits partly flow to foreigners, it will still probably hit a first quarter surplus, the first since the 1970s, a massive 6 per cent GDP swing over the past year or so."
This comes as the weekly reading on consumer confidence by Roy Morgan and the ANZ found that the index rose by 6.1 points (4.7%) to a 6-week high of 119.1 in the week to February 26. Confidence is up 7% over the year and above the average of 119.1 since 2014.
And all the readings on family finances have gone hugely positive. It’s great news for the economy as well as the Prime Minister, who’s dealing with a one-seat majority in Parliament and a troubled political team.
Meanwhile, company profit readings have been very promising. When these head up, wages and business investment follows and these are the two trouble spots for the economy.
The economic news is good for Treasurer Scott Morrison, who has to present a Budget in three months’ time. An economy going gangbusters can cover up a lot of problems and make responsible promises more affordable, as well as judicious spending cuts less painful.
Seriously, if we had a more sensible Senate, 2017 could be the great year we had to have to fix a lot of our Budget Deficit and public debt problems.
Wishful thinking aside today, we get that latest reading on economic growth for the December quarter and I’m expecting the good news to keep rolling in. And if Donald Trump delivers with his speech to Congress at lunchtime (our time), then our stock market could have a nice day at the office today.
And it could turn into a nice couple of weeks but I don’t want to think of the opposite.
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