Liam Dann 's Opinion

Business editor of the NZ Herald

Liam Dann: Harden up, cobber - it's called the GFC

58 comments
Australia has hardly been touched by the global financial crisis. Photo / Jo Assink
Australia has hardly been touched by the global financial crisis. Photo / Jo Assink

Dear Australians, harden up.

It seems like all we've heard from economic commentators across the Tasman this year is how the mining boom is coming off, how the economy is slowing. Business and consumer confidence surveys have been grim and the Reserve Bank of Australia has cut the official cash rate twice.

This week, just a day after the latest cautionary rate cuts, GDP growth figures came in.

They were almost embarrassingly strong - more than twice what most economists had predicted.

The Australian economy grew at 4.3 per cent in the year to March.

Right-oh then, the strongest growth in the Western World - give or take an Israel or Sweden.

"Rumours of the economy's death have been totally exaggerated," Commonwealth Bank of Australia chief economist Michael Blythe told CNBC.

Was this stellar growth off a low base? No, Australia is already ranked in the top 15 nations for GDP per capita.

Was it a rebound from a really big fall? Well, the last couple of years have been a little flatter than usual but let's get real, Australia is one of the few Western nations to completely avoid a recession following the global financial crisis.

They might have had a couple of quarters of negative growth in 2009 but Prime Minister Kevin Rudd wasn't having a bar of it.

He unleashed an enormous Government surplus on the economy with two stimulus packages.

In October 2008 - at the height of the GFC panic - he committed A$10 billion to boost the housing markets and consumer spending.

Then in February 2009 he committed a further A$42 billion to new infrastructure building and programmes like home insulation.

Plenty of that money is no doubt still flowing and propping up parts of the economy.

It is probably propping up parts of ours too, assuming those kids on the Gold Coast are sending a bit of cash home to the family.

It is true that Australia has a two-speed economy.

The mining states are raking in the dough while the traditional powerhouses of Victoria and NSW are struggling.

But you only have to look around the world to see that the whole nation is in much better shape than most.

On the political front current Prime Minister Julia Gillard is facing a popular revolt over economic policies like the carbon tax and foreign investment rules.

Last week the annual Lowry Institute poll found that 70 per cent of Australians believe the country avoided recession because of Chinese demand for commodities rather than any kind of astute management by the Government.

They are a tough crowd.

Relatively speaking Australia has hardly been touched by the GFC and it is pretty clear the voting public expect that to remain the case.

What's really bothering those Australians with an eye on the economy is that they have become dangerously reliant on commodity exports - just like us only with uranium and iron ore instead of sheep and cows.

Nobody is quite sure how long the mining boom will last.

The Chinese economy is slowing. In fact the Chinese Government is trying hard to slow it to avoid overheating.

If it does overheat and then comes off fast - or even if the Chinese Government overdoes it and brings growth lower than anticipated, then Australians might actually get a taste of what the rest of the world has been going through.

To be fair to the RBA, it is setting policy looking forward and the GDP figures are now historic.

Commodity prices have been falling on European concerns but a historically low cash rate of 3.5 per cent will start to look pretty paranoid unless they fall off a cliff in the next few months.

In New Zealand the 2.5 per cent cash rate still factors in a 0.5 per cent cut for the Christchurch quake and our GDP growth is currently a miserable 1.8 per cent.

The last quarter of 2011 came in at just 0.3 per cent.

Then there are the relative savings and debt levels of the Australians and Kiwis ... oh, let's not even bother.

Are we jealous? Sure, and we should be.

It is no coincidence that Kiwis are leaving for Australia in record numbers. That's why it is almost comical to see how panicked Australian officials seem to be about their alleged slowdown.

By leaning so heavily on stimulus so early on and now by cutting rates at the first sniff of a Chinese slowdown they have kept things buoyant.

The question now is what are they leaving in the tank to deal with a real crisis.

twitter.com/liamdann

- NZ Herald

Liam Dann

Business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

Have your say

We aim to have healthy debate. But we won't publish comments that abuse others. View commenting guidelines.

1200 characters left

Sort by
  • Oldest

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on production apcf05 at 29 Dec 2014 20:52:35 Processing Time: 513ms