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Economic outlook just keeps on getting gloomier

05 Nov 2008 5:02 PM
Economic outlook just keeps on getting gloomier

By Garry Shilson-Josling, AAP Economist

SYDNEY, Nov 5 AAP - The economic outlook just keeps on getting gloomier.

Even the good news today - the second-biggest trade surplus on record - is gloomy when viewed from the right angle.

The trade surplus rose to1.46 billion in September following a $1.24 billion surplus in August, the Australian Bureau of Statistics (ABS) said.

It was the biggest trade surplus since June 1997, the month the Reserve Bank of Australia (RBA) cleaned out its vaults and boosted gold exports by1.9 billion.

Exports of goods and services for September 2008 were up by1.85 billion or 7.5 per cent while imports were1.55 billion or 7.0 per cent higher.

When both sides of the accounts make similar moves, it suggests something is at work beyond trends in trade volumes.

In this case, prices seem the most likely explanation.

By the beginning of September, the Australian dollar was about halfway through the savage depreciation of the past three and half months.

When it announced the unexpectedly large interest rate cut yesterday, the Reserve Bank of Australia warned that the exchange rate might retard the previously forecast fall in inflation.

Now, it seems, the inevitable import price rises are starting to flow through.

Still, any fears of stubbornly high inflation will be outweighed by the flagging economy.

Confidence in further interest rate cuts has never been more soundly justified.

Another day's data has just tilted the scales further.

The ABS reported a 7.2 per cent seasonally adjusted fall in the number of residential building approvals in September to the lowest level since April 2001.

The value of non-residential approvals fell by 8.0 per cent to a 14-month low.

They were not one-offs - both falls were part of a downward trend in the construction sector, a key driver of the Australian economic cycle.

Two hours earlier, the Australian Industry Group- Commonwealth Bank survey of the services sector came in.

It showed the sector had contracted in October for the seventh consecutive month, with employment down for the fifth month in a row.

The corresponding AiGroup-PriceWaterhouseCoopers survey of manufacturing onMonday showed the weakest labour market in its 16-year life.

The ABS labour force figures for October, due tomorrow, stand little chanceof dispersing the pall of gloom hanging over the economy.

Just about every indicator of labour demand, including the ANZ's survey of jobs ads published on Monday, show distinct weakness.

Growth in the trend measure of employment slowed to 7,300 per month by September from 29,200 at the end of last year.

Picking monthly movements in labour force data is a mug's game, but an evenslower trend in the coming few months is a safe bet.

Perhaps the only upbeat note sounded today was the government's mid-year economic and fiscal outlook.

The forecast of 2.0 per cent growth in gross domestic product (GDP) in the 200809 financial year, 2.25 per cent in 200910 and 3.0 per cent in the following two years implies a slowdown from the 3.4 per cent average of the past five years.

However, all of those figures imply the first half of this year, with its annualised growth rate of 1.9 per cent, will be as slow as it gets.

Given the barrage of data suggesting the exact opposite, rose-coloured spectacles must be all the rage in the corridors of Treasury these days.

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