What’s Behind Australia’s Sheer Dumb Luck?

Thu, 30 Mar 2017  |  

This article first appeared on The Adelaide Review website at his link: https://adelaidereview.com.au/opinion/business-finance/behind-australias-sheer-dumb-luck/ 


What’s Behind Australia’s Sheer Dumb Luck?


As the mining investment slump continues and the housing boom is at an extreme risk of turning nasty, the Australian economy is getting another dose of good luck.

In the last year or so there has been a significant rise in commodity prices, and this is adding to national income and corporate profits, presenting upward momentum to the economy for the first time in four years. Over the past year, the economy has otherwise muddled along with GDP growth not sufficient to boost employment growth, wages growth or inflation, the latter two hovering at record lows. The market is so convinced about this change of luck that it is betting that the sharp rise in commodity prices will force a policy tightening within a year.

The money market futures are now pricing in two 25 basis point interest rate increases by the end of 2018, such is the optimism and change in sentiment. There is roughly a 50 per cent chance that the RBA will hike rates before the end of 2017. Just a few months ago, an interest rate cut was anticipated by the market.

Regardless of what might happen to interest rates, the commodity price rise has occurred at a time of record production of iron ore and coal, and even though natural gas prices have lagged the strength in other commodities, gas output and exports are set to surge in the next few years. Not only are the amount of commodities we are exporting rising strongly, but the price received is sharply higher.

So strong is the commodity price surge that Australia is now recording substantial surpluses on its international trade, something that does not happen all that often.

The commodity price uplift and flow-on benefits are sheer good luck for Australia. They are not the result of skill, or the result of good policy – it is sheer dumb luck. At a time when monetary policy has been targeting house prices rather than inflation and unemployment – and the budget repair effort of the government is floundering in intransigence and half-hearted attempts to return to surplus – some good luck was needed. Without it, the economy would now be in trouble and heading for the rocks. While the economy was never really on the cusp of recession, the shock of the fall in GDP in the September quarter 2016 presented a stark indication of the indifferent economic performance. When the December quarter GDP results were released, there was universal relief that the commodity price surge had fuelled stronger GDP, a rise in the terms of trade and a bottoming in inflation risks.

While commodity prices remain at these elevated levels, the economy should be able to keep its head above water, meaning two to 2.5 per cent real GDP should be sustained. Inflation may creep up to the lower bound of the RBA target range and the unemployment rate, hopefully, will remain below six per cent. But as this recent experience shows, commodity markets are fickle, extremely vulnerable to new demand from China and additional supply from the mega mining companies. Just as commodity prices have risen sharply over the past year, they could reverse those gains over the next. It will be a race between global demand and the amount of supply the commodities producers can churn out.

In the interim, Australia is set to register a world record 26 years of unbroken economic growth. It is a remarkable achievement and something that has delivered unrivalled wealth and opportunity. It is a legacy of policy reform, a flexible exchange and simple dumb luck, which have all played a part in this world-best achievement.

One day, a policy error will be made or our luck will run out. The recent commodity price surge is covering an array of cracks in the economy and means that if our luck runs out later this year or in 2018, some form of hard landing could unfold. But, for now, the economy is looking good.

Beyond that, no one can be sure, but an inevitable housing downturn, ineffectual policy settings and the risk of the commodity cycle reversing mean 2018 might be the year of living dangerously, at least for the Australian economy.

comments powered by Disqus



Wed, 29 Jul 2020



Covid19 has opened a door for Australians to positively accept significant changes that will lead to a shared good. This rare opportunity enables us to achieve sustainable economic and social goals that create a new ‘normal’ as our way of life.

These Ten Steps are presented as non-partisan recommendations to the Australian Parliament in the firm belief that, if they embrace them, the Australian economy and society will be greatly enhanced after the Covid19 pandemic has passed.

*A job for you if you want one.
A significant increase in part time and casual employment can be created that will enable you to enjoy a more creative and peaceful lifestyle and to live longer and better. The traditional age at which you would have been expected to retire will become obsolete as a result. An access age for pension and superannuation will become your choice. This will enable you to remain in paid work for as long as you want to, on a basis that you choose, while boosting the productivity and growth of Australia.

*You will get wage increases that will be greater than your cost of living.
A demand for enhanced innovative skills at all levels of employment will be created as the economy grows in strength, thereby enhancing your stature in the workforce and enabling executive salaries and bonuses to drop to levels that are accepted as justifiable by employees, shareholders and customers.

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   


The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced.