Economic growth all about "stimulus"
By Colin Brinsden, Economics CorrespondentWed Sep 2 22:41:57 EST 2009
Wed Sep 2 12:41:57 UTC 2009
CANBERRA, Sept 2 AAP - The ability of the Australian economy to grow while the rest of the world is in recession is all down to the federal government's economic stimulus.
Treasurer Wayne Swan was keen to make the point, uttering the word "stimulus" no fewer than 37 times during his 29-minute media conference following the release of the June quarter national accounts.
Treasury estimates, according to Mr Swan, that without this stimulus the economy would by now have contracted for three consecutive quarters with annual gross domestic product (GDP) dropping 1.3 per cent.
It would have also put tens of thousands of jobs at risk.
Instead, the economy has grown for the last two quarters, after the December quarter dip, at an annual pace of 0.6 per cent.
While still way below trend growth, it is far, far superior to the average 4.6 per cent contraction recorded by the G7 economies in the same period.
Of course, the Reserve Bank of Australia (RBA) has also had a hand in what Commonwealth Securities chief economist Craig James described as a "remarkable" achievement.
He points out that the economy has just completed its 18th year of continuous growth - contracting only in one quarter during the past eight years.
"The government and Reserve Bank deserve praise for the response to the global financial crisis," he says, adding that other economies can learn a thing or two from Australia's efforts.
Mr Swan can pass on a few tips when he meets his G20 counterparts face-to-face in London this weekend.
But while the treasurer has no intention of cutting back any of the government's remaining stimulus - much to the anger of the opposition - the RBA may be close to winding back some of its 425 basis points of reductions that have taken the cash rate to a 49-year low.
Short-term money market interest rates were again factoring in a 25 basis point rate increase in November, and possibly the same amount in December following the GDP result.
There is only a minor chance of an October move seen at this stage.
Still, it was only Tuesday that the market was questioning an early move after the RBA's rhetoric proved less harsh than expected when it decided to leave the cash rate unchanged for a fifth straight month.
RBA Governor Glenn Stevens said the board felt that the 3.0 per cent cash rate was appropriate for the "time being".
The debate over the timing of the first rate increase will ebb and wane over the coming weeks with every piece of data.
Next week alone will see reports on retail spending, jobs and housing finance.
But it is clear that the central bank will not want to keep what it has labelled an "emergency" rate for longer than is necessary.
Even Mr Swan is not debating that fact.
