The RBA’s John Edwards reckons:
“There’s a debate about whether the place is picking up or tipping into a very serious downturn, and this certainly argues against the serious downturn point of view,” he said. “I think we are getting a bit of strength and making the transition and continue to grow not too far below trend.”
If the improvement continues, pressure will grow on policymakers such as Dr Edwards to increase official interest rates before inflation and house prices get out of hand.
While house price rises appeared to have moderated, Dr Edwards said it “would certainly be of concern” if housing continued to surge at the pace seen late last year “for a protracted period.”
…“We’ve been helped along a bit by consumption but it may not continue . . . and we’ve still got a way to go in the downturn in mining – but still, it’s a very encouraging result.”
An appropriately sober celebration amid the hysteria in some quarters about one better quarter of economic growth. I’d have preferred something like “there’ll be no recovery until the dollar is at 80 cents” but you can’t have everything!
The Treasurer made more sense, from the AFR:
…The Treasurer said he saw the national accounts as no more than “one quarter in relation to some of the nominal growth details.”
“Frankly, I think there are some good signs: profitability of business is good but that may mean that they take advantage of the losses they’ve accrued over previous years and what we actually receive in company tax, which is our most volatile, as you know, source of revenue arguably.”
…“The fact is that, even though companies might be more profitable during this period, it might not necessarily be reflected in the level of tax they actually pay because they’ve got previous losses…if you look at some of the major mining houses, without naming them but they’re pretty obvious, they would have been the biggest taxpayers over the last few years, maybe not last year but over the last few years…That’s because they have consistent revenue streams and relatively consistent profitability. But as I say, iron ore prices have come off – volumes are up, volumes are good but prices aren’t necessarily terrific and [with] coal I think we’re near record volumes but prices are down significantly. In fact, the prices – the current iron ore and coal prices – are below our budget forecast.”
“we’re not going to undermine improving economic growth in the budget…We’re not going to do that. We want the economy to grow faster. To give people more jobs. That’s what we want. But we are, of course, going to do everything we can to have a credible path back to surplus so that we can then start paying down the debt.”
That is exactly right. Nominal growth for the past year is now at 4.8% versus 3.5% in the Budget, presaging revenue upside in the next few quarters. But the bigger picture is terms of trade falls ahead of the MYEFO outlook and capex forecasts of -2% for the 2014/15 year that are far behind the reality of current ABS forecasts of -11% to -17%. The Treasurer would be mad to talk it up, or to create further fiscal drag for that matter, give these circumstances.
Despite government and consumer spending rebounding in the December quarter (in a display of pent-up relief post-election), it was the second consecutive quarter of shrinking domestic demand.
