SYDNEY, June 30, 2019 (BSS/AFP) – Australia’s record-breaking economic run
isn’t about to end because of a ban on plastic bags — as one lobby group
spuriously claimed — but consumers are buying less, offering a cautionary
tale for the rest of the world.
Once dubbed the “Goldilocks economy” for avoiding the pitfalls of the
global financial crisis, Australia has seen 27 years of uninterrupted
expansion — unprecedented in the developed world.
But the outlook appears increasingly bearish, and resilient Australia’s
faltering growth could be the canary in the coal mine for the world economy.
The economy grew just 0.4 percent in the first three months of this year,
after near-zero expansion in the second half of 2018.
Strip away gains from population growth and the country is technically in
a recession.
“The big issue is the consumers,” National Australia Bank chief economist
Alan Oster told AFP.
Like many advanced economies, Australia’s unemployment rate is not too
bad, but like elsewhere there has been a troublesome mixture of high personal
debt and stagnant wages.
In response, Australians are being more thrifty — spending less on eating
out, paying little heed to almost constant high street discounts, and,
crucially, spending less on rent and accommodation.
House prices in Sydney have now fallen almost 15 percent from their peak
two years ago.
– The emperor’s clothes –
The downturn has exposed weakness in the Australian economy that had been
masked by China’s insatiable appetite for Australian commodities.
The economy now looks less like Goldilocks and more like the emperor with
no clothes.
That’s a big lesson for the rest of the world as it picks up the pieces
after the financial crisis, Gabriele Gratton of the University of New South
Wales said.
“The Australian economy didn’t diversify enough and it exposed itself to a
situation where Australian households are highly indebted,” Gratton told AFP.
Chinese growth also contributed to the sharp rise in housing prices as
both locals and foreigners piled into the market, particularly in the major
cities Sydney and Melbourne.
But the Chinese economy has been losing momentum in recent years, reducing
the demand for commodities and properties in the sun.
“If prices do not collapse, then nothing happens. But if prices do
collapse, it will cause the type of (problems) that we’ve seen in Ireland or
in Spain,” Gratton said.
The Reserve Bank, which just a year ago appeared more likely to raise
interest rates, has reversed course and cut, with more cuts expected.
With interest rates already so low, stimulus spending could be on the
cards. But both the central bank and the government have limited room for
manoeuvre.
“The problem is you don’t have the policy instruments that we can pull now
that we pulled in the global financial crisis,” Oster said.
Despite the pessimism, most economists do not believe Australia will slip
into recession.
The Australian dollar has been weakening, boosting exports, state and
federal governments have been splashing out on public services such as
healthcare and infrastructure, and population growth remains strong.
Prime Minister Scott Morrison has promised to cut taxes and red tape.
But forecasts over the last year have been repeatedly over-optimistic.
Central bank governor Philip Lowe has taken the unusual step of asking the
government to spend more — lest the porridge go cold.