July 07, 2012
Another year with more of the same: that's the forecast for the Australian economy in 2012-13.
ANOTHER year with more of the same: that's the forecast for the Australian economy in 2012-13 from our half-yearly economic survey published today in BusinessDay. The forecasts, by economists in the private sector, universities and business groups, range from boom to bust, but most are in the middle. They predict that for Australia, 2012-13 is likely to bring a repeat of 2011-12. Growth will be solid if unspectacular: output would rise 2.9 per cent, driven by record investment to open new mines in the outback and by population growth lifting consumer spending. This would not stop unemployment edging up or guarantee that the budget delivers the surplus the Treasurer has promised. But in a year in which Europe is facing deepening recession, Australia would again be one of the better performers of the developed world.
Yet there are issues of concern. The forecasts imply that Australia will remain one economy in name only. The mining sector and its associated industries will be booming; but with overall growth subdued, that implies the rest of the economy will remain stuck in low gear, some of it in reverse. It implies that Victoria and the other south-eastern states will again tread water. It will be here that unemployment grows, that consumer spending will be constrained and that manufacturing takes the brunt of the higher dollar.
These are issues we have raised before, and will do so as long as they weigh down on Victorian business. The Saturday Age makes no apology for defending this state's industries against an economic strategy which requires growth here to be flattened to ''make room'' for mining investment on the other side of Australia to boom without generating inflation. We accept that the Reserve Bank is responsible for keeping inflation under control, that its only weapon is interest rates, and they are a blunt, indiscriminate weapon. But the Reserve is also responsible by law for ''the maintenance of full employment … and the economic prosperity and welfare of the people of Australia''. It has to balance those two goals. Its overly aggressive rate rises in 2010 failed to keep that balance. We welcome its recent cuts to interest rates and hope that their impact will gradually revive activity in the mainstream of the Australian economy. But clearly the panel of forecasters is not expecting much relief in 2012-13.
Much of this is driven by forces beyond anyone's control. China and India started growing rapidly, through steel-intensive development, when mining investment globally had been slack for a decade. So prices rose rapidly, mining companies responded by investing heavily and traders responded by driving up the Australian dollar. This made Australians wealthier, and they have responded by taking holidays overseas and buying increasingly from online sites where our high dollar packs a punch. All this is natural and inevitable; but it has consequences for industries at home, which requires more subtle management. Even with China's growth prospects now uncertain, as John Garnaut reports today in our business pages, the forecasters predict that the peak of the mining construction boom may be still two or three years away.
Those subtler weapons that can direct support where it is needed are in the hands of the federal government - and potentially, the Coalition government-in-waiting. We have seen what Labor has to offer: a sympathetic shrug of the shoulders and a pledge of a budget surplus. It is time we heard from the Coalition. Within a year, if not sooner, it will be asking Australians to entrust it with government. Yet it has told us little about what it would do if we did. It has released an interesting policy to fight dumping but we need to see more policies like that. We need to hear what it would do for the mainstream of Australia's economy remote from the coal and iron ore mines. Our two-speed economy is its problem too.
A YEAR ago there were fireworks and a 21-gun salute to herald the birth of the world's newest nation. But as South Sudan prepares to celebrate the first anniversary of breaking away from Sudan, its citizens - many of them returning refugees, including some from Australia - are a long way from reaping the benefits. Despite the optimism of its people, the changes were never going to be easy: the Comprehensive Peace Agreement, negotiated with Sudan after decades of internecine war, is far from settled and a long history of underdevelopment has left a country the size of France with fewer than 100 kilometres of roads. More than infrastructure, food is scarce, supplies affected by a central government decision to halt oil production after renewed conflict with its northern neighbour. Aid agencies report on the spread of disease, such as cholera, and mortality rates are increasing.
Unless these urgent issues are resolved, South Sudan's bountiful oil resources have little value and people will continue to starve. A key question is how much should landlocked South Sudan pay Khartoum, in the north, for the use of pipelines and infrastructure on the Red Sea to export its oil? The price demanded by the northern Sudan - still governed by Omar Hassan al-Bashir, who is wanted by the International Criminal Court for war crimes in Darfur - is outrageous. Khartoum must also realise that failure to resolve the dispute is self-destructive: neither government can turn oil into wealth without the other. As the United Nations struggles to deal with the 2.4 million people seeking food aid, there will be no progress unless it can assist the nations in reaching agreement about oil. Only with economic security can a fledgling nation advance the dreams of July last year.