Did you hear that noise?
It was the sound of the Australian lifting a gear and moving back to trend growth.
The national accounts confirmed the Australian economy ending 2013 with GDP growth at a decent 2.8 per cent which translates to an annualised rate of 3 per cent over the final six months of the year.
If you were a policy maker and seeing GDP growth at trend, with inflation jumping to the upper part of your target, when the world economy is lifting, would you consider a record low 2.5 per cent cash rate to be appropriate?
After the release of the labour force and capital expenditure data in recent weeks, an interest rate hike in March was always going to be off the table.
My forecast from five months ago for a hike in March, albeit wrong, left me with a profit on trading given the market was pricing in an interest rate cut for all of that time. So a wrong call that makes money? I'll take that.
The RBA announcement today highlighted its new found view that "growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate". Unlike many in the market, the RBA is clearly looking at the stellar housing activity (prices and construction), solid consumer demand, strong export growth, improving global conditions and a pick up in inflation to support this view.
• Job ads up
• House prices up
• Home building approvals up near record highs
• Retail spending strong
• Company profits growth up over 10 per cent
• Government tax revenue stronger than expected
• Business conditions lifting
• ASX near 6 year high
• Exports booming
• Interest rates at record low
• Government demand no longer restrictive
• Aussie dollar low
• Non-residential construction up
• Inflation lifting to upper part of RBA target band
• Mining investment falling very sharply (but note above the other 90 per cent of the economy)
• Employment weak (but note above, the ANZ job ads)
I'll take the high road on the weight of that evidence.
The Australia economy is significantly stronger than was forecast at the time of the release of the Mid-Year Economic and Fiscal Outlook in late December.
So says Finance Minister Mathias Cormann.
The Government Monthly Financial Statement for the six months to December, shows that tax revenue is flowing in to the government coffers at a 1.1 per cent faster pace ($1.754 billion in six months) than was forecast at MYEFO.
Encouragingly, the increase is quite broadly based.
With today's $800 million borrowing from the Federal government, the total amount of gross borrowing has topped $50 billion - $50.65 billion to be precise - since the election in September last year.
The government has had to borrow to cover the existing deficit as well as to cover some of its decisions on 'border protection' and the $8.8 billion is spent on the reserves of the Reserve Bank of Australia.
The total amount of gross debt on issue stands at $300.6 billion, a record high and up some $27.4 billion since the election.
Adam Smith, the father of economics, noted:
• "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from regard to their own interest".
So too Australian farmers.
It seems most of the market has missed it, but the Australian dollar has already had its sell-off, dropping from 110 US cents in July 2011 to 86.60 cents just last month. The peak to trough fall is over 20%.
Down at around 87 or 88 cents was the time to get in because the pick up, back to around 90 cents at the moment, is just the start of trend that should see the AUD move back to 95 cents and then above parity.
UPDATE 1.20pm, Canberra time:
Aussie dollar now 0.8945; US stock futures down 0.2 per cent, Chinese stocks down 2 per cent, European stock futures down 0.5 to 1 per cent. Market assessing the G20 growth objective as useless, meaningly and unreachable. Hot air swallowed by an easily plied few, but not the markets. SK
It's Monday morning and financial markets are passing their judgment on the G20 Finance Ministers and Central Bank Governor's meeting in Sydney over the weekend.
The headline grabbing quest for an additional 2 per cent economic growth over 5 years for the world economy has been met with nonchalant indifference. US stocks futures are a piddling 0.1 per cent higher, recouping a fraction of the 0.3 per cent fall that was registered on Friday; commodity prices are flat; and in what should be a super-charging development for the Australian dollar – stronger global economic activity – the Aussie is less than 0.1 per cent higher at 0.8980.
The Abbott government just borrowed a further $800 million, which brings the cumulative total of gross borrowings since 9 September 2013 to $48.85 billion.
The Australian Office of Financial Management has indicated it will borrow a further $1.8 billion next week which will bring the amount of gross debt issued since the election to over $50 billion in just over five months.
This article was first published in The Melbourne Review https://www.melbournereview.com.au/commentary/article/joe-hockey-treasury-or-trickery
In the move to a budget surplus, how much is Joe Hockey's prowess as Treasurer and how much is trickery?
The Abbott government's chances of re-election in 2016 will be driven by the budget next year.
On 12 May 2015, Treasurer Joe Hockey will deliver his second budget and in doing so, he will announce that the budget is back on track, the Labor mess has been cleaned up and that for 2016-17 and beyond, there will be budget surpluses.