8 July 2020
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Our economy is lookin' good. Ignore the doomsday economists

Peter Switzer
2 June 2016

By Peter Switzer

Seriously, some economists should take note of the website www.seek.com.au as they might need to go there soon after badly misinterpreting the Oz economy, again! There’s a whole load of economic number crunchers who keep talking down our economy but the good old economy keeps making a monkey out of them.

Yesterday, economic growth came in at 1.1% for the March quarter but forecasts averaged at 0.8% by some ‘experts’ had us growing a lot slower. They’ve been putting out their faulty forecasts for a lot of quarters and it’s time they changed their economic models or their jobs!

I’m sorry to be so harsh to some of my fellow economists but if they could get it right more often well, maybe, even the media would get on board the positivity train and, maybe, consumers would actually see that our economy is a lot better than it has been portrayed.

Sure, one day these guys and girls, who get paid to guess the future, will be right but it’s painful being given patronizing looks by this lot when I pose questions around economic indicators that tell me the economy should be better than what they’re predicting.

For example, one guy, who’ll remain nameless, thinks our cash rate of interest will go to 1% over the next year.

For that to happen, inflation would have to tumble into deflation for a few quarters and I reckon world economic growth would have to weaken substantially. To me, we’d need to see a worldwide recession being in train for that to happen and while one might show up over the next five years or so, as it often does, I can’t see it over the next 12 months.

That said, even talk of a 1% cash rate would scare the pants off retirees, who want term deposit rates to start climbing ASAP. They’ll have a wait for that to happen but if a 1% cash rate comes, then it will be three-five years before rates rise for these much-loved saving products preferred by risk-averse retirees.

Let’s look at the news out there that should make us pretty positive:

  • The March quarter economic growth number was 1.1%, taking annual growth to 3.1% (this is found by adding the past four quarters);
  • The ABS upgraded the December quarter growth guess from 0.6% to 0.7%;
  • The Reserve Bank takes the last two quarters — 0.7% and 1.1% — adds them together and multiplies them by two to make the past six months annualized and this comes in at a solid 3.6%! 
  • Growth is now the fastest in 3 and a half years;
  • Growth over 3% tends to take the unemployment rate down;
  • Unemployment at 5.7% is at a two and a half year low;
  • The CBA’s look at economy-wide sales is at a six-year high;
  • The CoreLogic RP Data Home Value Index of capital city home prices rose by 1.6% in May, after lifting by 1.7% lift in April. Home prices were up by 10% over the year to May and dwelling prices rose in seven of the eight capital cities in May (Perth prices fell 2.7% but this is the mining state, so you’d expect that.)
  • The Performance of Manufacturing index eased further from 12-year highs in May, down 2.4 points to 51. A reading above 50.0 indicates that the sector is expanding. The index has been above 50 for 11 months – the longest period of expansion since September 2006!
  • Dwelling approvals rose by 3% in April. The value of all building soared by 18.3% – the biggest monthly rise in four years. CommSec says “building was at record highs in trend terms”;
  • Private sector credit (lending) rose by 0.5% in April to stand 6.7% higher than a year ago – the strongest growth in seven years;
  • Even the troublesome business investment area, badly affected by the mining boom petering out, showed that the second estimate of investment for 2016/17 is $89.2 billion, up 6.3% on the first estimate and the second best lift for an equivalent period in eight years;

I could go on about tourism numbers, residential construction and car sales, which are either at, or near, record-high levels. Throw in interest rates where they are now and it paints a damn pretty picture, which doesn’t surprise me when economic growth comes in better than pessimists have been expecting.

Also, the low dollar is always good for economic growth and we’ve got that right now. And in the US, the Yanks’ economy is defying the nervous Nellies by growing fast enough to justify the central bank getting close to another interest rate rise.

Just imagine the momentum if we had stable, inspirational governments and more economists were more positive about our economic future and the media was going along for the ride. Now that would be a pretty picture!

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