More ‘services will save us’ clap trap

From David Scutt:

Led by a lower Australian dollar and surging demand from Asia, the prospects for Australia’s massive services sector are looking up.

The much-hyped economic rebalancing, although slower than what many people would like, is clearly under way with the nation’s vast tourism and education industries leading the recovery in activity.

Paul Bloxham, chief Australia and New Zealand economist at HSBC Bank, has taken a look at the recent improvement in Australian services exports, stating that the burgeoning middle classes in Asia provide Australia significant trading opportunities outside of mining exports.

Here’s a snippet from Bloxham’s excellent research note released this morning:

“Asia’s rising middle class incomes also present Australia with significant trading opportunities outside of mining. Most apparent is demand for services, particularly education and tourism. These are already quite large exports for Australia. Over the past year, education exports were Australia’s third largest export earner, at around AUD18bn, behind only iron ore and coal. Indeed, in the past couple of years, services exports have shifted from being a net drag on GDP growth to being a net contributor and have contributed more to GDP than resources exports over the past year.”

The charts below, supplied by Bloxham, reveal the rapid improvement seen in Australian services exports, particularly for education, tourism, and to a lesser degree, financial services.

The charts reinforces the point that the Australian economy is far more than just “China’s quarry”. The lower Australian dollar, something that is making the nation more competitive compared to other developed, highly skilled English-speaking nations, along with the rising middle classes in China, India and ASEAN nations, presents Australia with countless opportunities in the decades ahead.

While many of the headlines of late focus on weakness in commodity prices, the “CAPEX cliff” and concerns about China’s economy, there is more than enough evidence at hand to suggest Australia’s economic transition away from mining investment to other drivers of growth is gaining traction.

There is little doubt that the full transition will take time, and result in prolonged periods of sub-trend economic growth and weak national incomes growth. However, in the absence of another global downturn – something Australia has no bearing over – the prospects for the domestic economy are not grim.

Far from it, in fact. The opportunities are everywhere.

Scutty has not been an especially bullish or bearish commentator over the stretch but his appearance at Business Insider, which is occupied by some deluded one-eyed bulls, appears to have rubbed off on him in the wrong way. Bloxo is really just an RBA echo chamber and this services exports line is partial analysis. The gap between rising services exports and falling commodity exports is gigantic:

That is not to say that the rise in services tradables is not good and desirable. Indeed, MB has been a prime driver of the tradables recovery via its campaign for a lower dollar when the RBA echo chamber was still busy telling everyone to prepare for endless parity. The point is that the services rebound is clearly not enough to offset the resources decline and while we chew through this deficit for the next decade the economy will be at high risk, not least from external shocks (one of which is already building).

Denial of such is counter-productive for both policy and investing.