Feature
Issue No. 8 - December/ 2002/january
Economic Trends
by Tony Catt
The Australian economy continues to defy global trends, remaining resilient despite falling equity markets, sluggish global growth, tensions over possible war with Iraq, and the worsening drought. This resilience has been a function of strong domestic demand supported by a buoyant housing sector and low interest rates; the weak A$; and lack of exposure to the excesses of the technology boom. We forecast Australian GDP growth to average 3.6% in 2003.
Economic Activity – Housing construction appears close to peaking and could be a drag on growth during 2003. We believe house prices have risen to unsustainable levels and the possibility of a price correction is a downside risk to the 2003 growth outlook. However, we believe business investment spending is poised to rebound and should offset the expected housing downturn. Business investment spending is at a cyclical low as a share of GDP and Australian corporates have low gearing. Recent surveys also indicate a positive capex outlook.
Business Conditions – The National Australia Bank’s September quarterly business survey showed another rise in business conditions to the highest level in nearly three years. The results were strongest for firms focussed domestically, such as construction and retail. The survey indicated that firms have become more optimistic about capital spending plans, employment, profitability, forward orders and exports. Firms’ cost pressures remain subdued, which is favourable for the profits outlook.
Employment – Employment fell more than expected, by 30,700 in September following and 88,500 rise in August. A fall in the participation rate allowed the unemployment rate to remain unchanged at 6.2%. We expect employment growth to continue at around 15,000 per month over the remainder of 2002, leaving unemployment steady at 6.2% However, employment could surprise on the upside given the recent NAB’s survey showed employment condition...
