Quarterly Economic and Property Report Edition 4 2013
In terms of the local economy, the recent pick up in exports of iron ore and coking coal is good news, suggesting that Australias rising volume of supply is being absorbed by offshore buyers. The rise in consumer imports also implies expected rising consumption. However, neither of these developments will create substantial jobs in Australia. In fact, the recent depreciation of the dollar has not been all good news for Australian business. While a weaker dollar has helped raise returns in export markets and blunted some import competition, it has also raised input costs for some domestic industries that are in no position to pass them on. Around one-third of Australian businesses report adverse effects from the level of the Australian dollar, especially in wholesale, manufacturing, retail and mining. Businesses use a diverse range of strategies to deal with the level of the dollar, especially hedging, reducing overheads and downsizing.
Lower interest rates have yet to translate into increased capital expenditure in Australia which was 2.3 per cent lower, reflecting the trend of declining non-mining capital expenditure. While there still remain several very large projects under construction, as these are completed over the next three to four years, there are few projects of equal value scheduled to offset the decline in mining capital expenditure.
A result of this, while not popular opinion, could see the RBA cutting rates further to stimulate home building. This should also lead to a lower currency, which is positive for trade exposed sectors. A positive wealth effect driven by rises in equity and house prices will be a growing tailwind for growth from late 2013. The savings rate should also fall as rising wealth boosts consumers passive savings.
Over the medium term the Bureau of Resources and Energy Economics (BREE) assumes Australias GDP growth will moderate to 2.5 per cent from 2014 to 2015. Proposed government spending on infrastructure, increased housing construction and a rise in mineral exports are expected to partially offset the decline in mining capital expenditure.
Looking offshore, over the past few years global economic growth, although declining, has been supported by robust activity in emerging BRIC economies (Brazil, Russia, India and China) as well as other nations in South-east Asia, South America and the Middle East. This growth in emerging economies offset low and, in some cases, negative growth rates in advanced OECD economies. However, in 2013 this pattern has begun to shift with recovering growth rates in OECD economies and declining growth rates among emerging economies. There are signs that the Eurozone is moving out of recession and that economic activity in the US and Japan has increased in response to expansionary monetary policies and stimulus measures. By comparison, growth rates have moderated in key emerging economies over the past two quarters along with significant fluctuations in their exchange rates, bond yields and equity markets.
The world economy is forecast to grow by three per cent in 2013, the lowest level since the global financial crisis in 2009 and 0.2 percentage points lower than 2012. Growth in advanced economies in 2013 is forecast to be slightly higher than in 2012 at 1.5 per cent as a result of improving economic conditions in the euro zone which is showing signs of recovery after a prolonged recession. Growth in emerging economies is forecast to moderate to 4.8 per cent in 2013, mainly due to expected lower growth in China, ASEAN economies and Russia. The property market overall should continue to benefit from prolonged access to affordable cash. However, it will be worthwhile keeping an eye out on the changing economy, which could derail the fragile state of confidence.