The headlines yesterday were for improving Australian growth as the Botox Boom takes a hold, but under the hood it was ugly. Domestic demand is now hanging by a single fiscal thread and the outlook is for more of the same:
Private investment is still shrinking and household consumption is very weak despite a tumbling savings rate, held back by the war on wages. This will not change much next year, with a little growth in private investment offset by falling dwelling construction, so we’ll still have an economy firing one cylinder next year as well.
As we know, regulators have acknowledged the housing bubble and are determined to cap it. They have done this twice before successfully without crashing the economy, in 2003 and 2010. But on both of those occasions domestic demand was booming as mining investment soared as an offset. This time it is whole different kettle of fish.
