Another heavy-weight of Australia economics weighs in on the bear side of the economic narrative today. Ed Shann appears at the AFR with a bear roar:
Both the Treasury and Reserve Bank have warned that Australia’s transition from mining-driven growth to faster non-mining growth may not be smooth. They are being optimistic. The adjustment could be ugly.
…The resource-related sector makes up 18 per cent to 20 per cent of the economy and has been growing so fast it has produced about 2 per cent of our recent economic growth. The rest of the economy has been close to recession and growing at only 1 per cent to 2 per cent a year.
…Next year, the resource-related sector may add nothing to output growth, and in following years seems likely to subtract from growth…That is no longer likely. Mining investment is likely to subtract 1 per cent a year from output growth from 2014-15 and on BREE estimates new projects will add only about 0.5 per cent a year to growth.
The swing is thus from the resource-related sector adding 2 per cent to output growth to it subtracting from growth in a year’s time. The non-mining sector is growing at only 1 per cent to 2 per cent a year and, to get aggregate growth anywhere near trend, it needs to accelerate sharply to 4 per cent plus annual growth.
Even if rates are cut further and the Australian dollar falls, the lags suggest a period of well-below-trend growth is likely. Previous rate cuts are starting to work, but the housing recovery is weak as is non-mining investment. Recent low non-mining-sector demand growth means there is plenty of spare capacity and little need for new investment.
Let me save our Treasurer the trouble. SHUT UP, ED!
