Signs of improved global economy support Aust outlook
By Garry Shilson-Josling, AAP EconomistFri Aug 21 01:02:36 EST 2009
SYDNEY, Aug 20 AAP - A brighter outlook for the Australian economy is supported by signs of a better performance by the rest of the world.
According to the latest forecasts from the Reserve Bank of Australia (RBA), whose guess is as good as any, Australia was pumping out a quarter per cent more gross domestic product (GDP) in the second quarter of this year as it did in the corresponding quarter of 2008.
It was a positive number but a sad statistic nonetheless.
If annual growth falls below about three per cent on a sustained basis, unemployment is likely to rise, So Australia is still well off the required pace.
Even so, it is doing a whole lot better than other advanced economies, where non-one would dare suggest a fully-fledged recession has been avoided.
The contraction across the developed world is undoubtedly the deepest since the second world war.
The latest estimates of GDP from the Organisation for Economic Co-operation and Development (OECD) released on Wednesday show the rate of decline in real output over the year to the June quarter was 4.6 per cent, close to the 4.7 per cent annual fall recorded three months earlier.
In an average year, OECD GDP would grow by 2.7 per cent, so the contraction has been at nearly double the normal growth rate - except with a minus sign in front of it - a truly extraordinary event.
The slump will not last forever, though.
In fact there are signs the cycle has already hit its low point and might recover faster than earlier expected.
The latest projections from the International Monetary Fund (IMF), published early last month, show zero growth in world GDP through 2009 followed by a 2.9 per cent increase in GDP through 2010.
That reverses a set of forecasts in April that predicted a contraction of 0.6 per cent in 2009 and growth of 2.6 per cent in 2010.
So the latest expectation is that GDP by the end of 2010 will be about one per cent higher than expected as recently as April.
The upward revision has been more cautious than the change in the official forecasts for Australia from the RBA in August, which recently lifted the expected level of GDP at end-2010 by two per cent compared with the outlook published in May.
But it's a lot better than nothing.
And those forecasts are not just hopes dressed up as numbers.
While the latest OECD estimates show the annual decline as steep as ever, they also show GDP actually stopped falling in the June quarter itself.
It was the first quarter without a contraction in the OECD since the first quarter of 2008.
It's early days.
The recovery is best described by the IMF's economic research director Olivier Blanchard as "nascent" - in the process of being born.
Things are better, at least on paper, outside of the developed world.
The IMF's latest forecasts show 3.3 per cent GDP growth in 2010, the same as in 2009, and 5.1 per cent in 2010.
That may be overly cautious.
Speaking to a parliamentary committee last week, RBA governor Glenn Stevens adopted a more upbeat tone.
"While the United States and Europe only now seem to be at or near a turning point, there has already been a marked improvement in economic activity in much of east Asia and India," he said.
The improvement was most marked in China, but Korea's economy had rebounded in the June quarter as well, he said.
It will still probably be a couple of years before growth in the developing world gets back to a rate - around seven per cent annually - enough to offset the effects of rapid productivity growth and rising urban populations.
Nevertheless the rising tide of growth will still help to lift Australia, adding some external stimulus to the momentum that has so far been imparted mainly by the RBA and the federal government.
