ABC’s The Business ran another interesting segment last night looking at whether the economy is likely to regain its mojo once the Federal Election is decided this weekend. The key points from the segment are:
- The manufacturing is in recession, acording to NAB’s chief economist Alan Oster, with capacity utilisation at the lowest levels since at least 1989 – even lower than the early-1990s recession.
- Business is in stagnation mode, according to the ACCI’s chief economist Greg Evans. Businesses are not investing, not borrowing money, and not hiring people.
- Partial economic indicators suggest GDP growth will be weak. NAB’s Oster believes domestic demand is growing at around zero percent, with all growth coming from increased net exports.
- NAB’s Oster sees no correlation between election results and business confidence. Rather confidence is driven by improving business sales.
- ACCI’s Evans says industry needs to see pro-business policies from the new Government.
Overall, I broadly agree with the above assessment, although I do see a short-term “sugar hit” to consumer confidence once the election is decided. Over coming months, I see reality setting in for most voters that things haven’t really changed, with the economy still facing the same headwinds, namely:
- Deteriorating jobs market and lower (possibly falling) national income growth as the mining investment boom fades and commodity prices trend lower; and
- Deteriorating Budgetary position, due to the worsening economic fundamentals and the high level of locked-in entitlement spending, necessitating further cuts to programs and/or increased taxes.
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In short, those banking on a return to the Howard glory years are likely to be sorely disappointed.
