Recession: Swing and a Miss.

With the ABS releasing its National Accounts figures yesterday a strange thing occurred, we avoided a recession. In a seemingly unprecedented move the Australian economy rose above negative territory and showed a small positive growth of 0.4%. The results of this news was almost instantaneous with the share market closing slightly higher overall. Whilst I’m cautious about this signalling the end of the bad economic times for Australia (and I’m glad Rudd doesn’t think that either) it does show that as a country we are well placed to ride out this crisis with the least amount of impact to our daily lives. There are a few key points to take away from the ABS’ figures however.

Firstly we need to take a look at what the contributions to the GDP figure where¹:

contribution

What we can see here is growth in Agriculture, Mining, Energy, Construction and Retail. What’s not doing so well is Manufacturing, Wholesales, Transport and Property and Business services. Whilst the strong growth in agriculture is a good sign the rest of the industries that showed growth only had small increases. Undoubtedly the retail figures are backed in part by Rudd’s stimulus package which also drove up imports. There was also some additional growth (about 0.5% from the previous quarter) in terms of exports, which could be put down to how cheap our dollar was until recently. The most worrying parts of these figures are the manufacturing and property and business services, as they represent a good chunk of where Australia’s future problems lie.

When the manufacturing numbers are down it usually means that there’s been a downturn in demand and this has been seen for the past few quarters. Whilst we can easily point the finger at the GFC for this one it signals that there is a decreased demand for production within Australia. Further to this we’ve seen an increase in the amount of imports over this last quarter showing that less is being sourced from within our country. Due to the dollar rising this could soon change however I believe the damage might have already been done, as many manufacturing plants have already begun to thin their workforces. Trying to take advantage of the strong local dollar will prove difficult for such companies as they will no longer have the capacity to increase production.

The property and business services is a little less worrying as there has been quite a lot of wealth knocked out of the top end of the market which will drag the entire sector down. Business are also cutting back on expansion plans and additional services so this is not particularly surprising either. However this figure still represents a downturn in this sector, but I believe that it is far better placed to recover than manufacturing is.

So overall I believe Australia’s resource backed economy is serving it well through this recession. We’re still feeling much of the pain from the GFC but at least there’s some signs that once confidence comes back to the markets Australia as a whole will be well placed to take advantage of it. The key issue for the Rudd government now is how to keep unemployment low through the next year or two so that we don’t lose our strong resource and manufacturing workforces, something which will cost a lot more to replace in the future.

¹Australian Bureau of Statistics, 2009,  Australian National Accounts: National Income, Expenditure and Product, Mar 2009 cat no 5206.0 , viewed 04 June 2009, http://www.abs.gov.au/AUSSTATS/[email protected]/productsbyCatalogue/35F488B5F9F7D242CA256DF000814610?OpenDocument


4 Comments

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  1. “so that we don’t lose our strong resource and manufacturing workforces, something which will cost a lot more to replace in the future.”

    Whether we even should replace it however is another question. Australia will have a base level of manufacturing (likewise farming) which is too profitable to ever disappear, but given the competition from Asia, and changing nature of our economy, why should we continue supporting industries that can’t be profitable on their own? Australia is a first world country with an almost third world economic base (resource, primary industry, manufacturing). In liberalising our economy in the 80’s & 90’s these industries were forced to stand on their own feet and most did fine, even prospered. But some have been on life support ever since, and this GFC whilst painful strikes me as a good time to restructure. If they can compete on their own, great, if not then tax payer money is better spent elsewhere instead of trying to continue a fight long ago lost. I’m not sure Rudd is yet sure enough of himself to tell Australia these hard truths, but current signs are promising (witness his talk against protectionism at the ACTU conference).

  2. Interesting point and a view I share with you when spoken in relation to companies like GM and Ford who at their hearts had flawed business models and are now looking to the government to keep them going. I guess the real question we have to ask ourselves is are these businesses based on a flawed model or is it truly the slowdown of the world economy that is causing their issue?

    Sound business will survive the recession whilst taking some hits to their overall figures. However I’m not all too concerned about the business per say (if they fail that’s capitalism at work) but the people who work for them. I can see your point though in that propping up struggling companies just for the benefits of the workers is a bad idea, but the government has to provide some other means for them to continue work. Either in their industry or reskill into a new one.

    I think you can see the dilemma here we have 2 very tough choices when it comes to supporting the blue collar workforce of Australia (who are the worst hit by this crisis). The first is ensuring companies stay alive by whatever means, subsidies or what have you, or we let them fail and then have a large workforce with no where to go. I’d whole heartedly support an aggressive education and reskilling program for people like that so they could continue work elsewhere, but we’ve seen how unpopular letting people lose their jobs is.

    What would you propose?

  3. The first step is to examine each industry in boom and now recession to determine what are long term sustainable issues, and which are just having trouble in the GFC.
    Second a hard-headed assessment of which industries bring in the most money in ratio to the support they recieve, and then compare this against jobs employed. The X factor is future growth potential, easyish to work out for farming, very hard for manafacturing.
    Finally this needs to be looked at geographically to spread the pain (so as not to hit area’s too hard in ways that say close down local towns) and of course the political strategies. Sure this means tough leadership, but we also removed tariffs in just about every industry from 72-2000 (all with unions and others claiming guaranteed our doom and poverty, and largely done by labor govts)

    Either way, Australia has both farming and manufacturing businesses that almost havn’t been profitable in 20 years and shouldn’t be saved. Indeed some studies show that it would often be cheaper to just pay the wokers 50k a year to sit on their ass, than the bailouts we give companies to save their jobs. Without this change, we will not be able to support emerging industries (ie overseas students are our 2nd biggest export industry, and computer games make more money than movies, yet neither register in our economic discussions in this country), and with increased regional competition and random challenges (ie global warming on farming patterns) we face an un-ending pattern of need from some of these organisations for as far into the future as you can look. The Australia of the 20th century ‘rode in on the sheep’s back’. The modern one can’t and shouldn’t be subsidising those still upholding that memory. I wrote about it back in February at a bit more length & with figures here: http://andrewcarr.org/?p=66

    Thoughts ?

  4. What you’re suggesting is a paradigm shift that’s going to be pretty hard for the public at large to swallow. I’ll agree that it’s probably the best course of action when considering the country’s future (and in fact demonstrates the heart of capitalism) however the transistion will be met with a lot of pain for the government implementing it. Can you imagine the kind of flack that Rudd would recieve if he told all the failing farms that since they were unprofitable they’d just have to give it up? Unpopular position to take, the spin doctors would have to be working overtime to make it palatable, but that would have to come in the form of programs to retrain people like that. As you said it’s cheap just to pay the people an average wage then bail them out, and it seems like giving them the oppotunity to reskill whilst getting paid could be the sugar this medicine needs to go down.

    Australia isn’t a very good place to nuture a start up company. Whilst we do have frameworks in place to support new businesses there’s just not the client base here to support cutting edge innovation, which is why we still see our most talented resources go overseas. I think an additional reform would be needed to encourage potential startups to start off in Australia, which would definitely improve our image to overseas investors.

    I think we’re in one of those times where the right thing to do will be highly unpopular and as such won’t get done. As we can see from what’s happening in America with GM the company was not based on a sound business model and when the easy money disappeared they failed completely, but the government can’t be seen not to do anything about it. Personally I would’ve loved to have seen GM fall to spur on the others, but it seems we won’t have that for anytime in the forseeable future.

    I guess the real question is, how do we market this to the Australian public?

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