Is it possible to have a “boom” that withdraws from growth? Apparently, yes, according to Ross Gittins:
Kevin Rudd keeps saying the China resources boom has ended, but Reserve Bank governor Glenn Stevens said recently the boom was merely ”changing gear” and going through a ”phase shift”. So who should we believe?
The econocrat, of course. The politician is exaggerating. It’s true, however, that we have reached a highly significant point in the boom: though it’s far from ending, we’ve reached the point where it’s gone from making a positive contribution to economic growth (real gross domestic product) to making a net negative contribution.
Boy would George Orwell be proud of that paragraph. The boom’s not over it’s just making a “net negative contribution” to growth. And his reasoning:
…the amount of construction activity will get smaller each quarter, more investment will still be happening each quarter. That is, the second, construction phase of the boom isn’t over, it’s just passed its peak.
Come back in five years time and we’ll have a lot more mines and natural gas facilities than we have today. Don’t let the economists’ obsession with quarter-to-quarter growth mislead you.
The next thing to remember is that maybe 40 per cent of our total mining investment spending goes on the purchase of imported capital equipment.
And, obviously, money we spend on imports is a minus in the sum that gives us GDP, the value of domestic (local) production of goods and services. So a reduction in a minus helps with growth. Allow for the decline in imports and the reduction in mining investment spending doesn’t subtract as much from the bottom line as first appears.
Which brings us to the boom’s third phase, production and export, which is just getting going. As all the newly built mines and gas facilities come on line, we experience very strong growth in the volume (quantity) of mining production and exports of minerals and energy.
This last point is true enough, though it will almost certainly under-perform expectations as iron ore and coal volume growth disappoints.
Ross Gittins is a card-carrying member of the “all you need is confidence” school of economic thought so taking the glass-half full approach is probably to be expected. But he does as well like to sell himself as one to ask the “hard questions”.
But how about a bit of mea culpa? Ross Gittins was one of the commentators breathlessly selling the endless boom thesis on the way up, he told us repeatedly that it was a good idea to hollow out our industrial base, along with the econocrats he praises he missed the top, and is now breathlessly following them down, actively fighting against the need to prepare for the inevitable adjustment with a series of articles attacking the need to generate higher productivity growth or even discuss the end of the boom.
In the national interest, how about a few hard questions aimed at the mirror?