It was wrong to talk down the economy during the Gillard years and it would be wrong to talk it down now – especially as something like the ‘Abbott bounce’ is finally apparent in retail data and consumer confidence.
That is a very good thing. The economy is at a precarious point and we frankly need to spend a bit of money and get businesses moving again.
The latest Dunn & Bradstreet Business Expectations Survey reveals, however, that it will take more than the current rebound in shopping enthusiasm to convince firms to invest and create new jobs. Just 1 per cent of firms plan to increase their spending, and only 2 per cent plan to expand their head counts. Those numbers need to rise.
The problem for the Abbott government, which for a time will enjoy basking in the glory of having caused a bounce at all, is that much work needs to be done to make this bounce last.
Consumers are a fickle species, and the current wave of optimism is driven by two wealth-effect factors – share prices are booming and so are house prices. Neither, to this contrarian’s eye, are sustainable phenomena unless commodity prices stay high and other sectors of the economy begin to fire.
Put another way, there is no fundamental driving this wealth effect other than a surfeit capital suddenly needing a home.
To the extent that that capital is domestic, what we are seeing is older Australians (two-thirds through the fund managers who decide where to put their super) deciding that company profits have hit their nadir and it’s time to get off the sidelines and buy shares.
Similarly, we are seeing older Australians still sceptical about equities deciding that bricks-and-mortar are much better than holding cash.
And if we lived in a closed, all-domestic economy that would all be fair enough. But both the housing market (through direct private acquisitions from abroad) and the stock market (through institutional buyers, but also hard-to-quantify retail investors) are being artificially pumped up by foreign money.
While the Federal Reserve’s third bond buying spree, or QE3, continues, we will see artificial growth in these two asset classes. And when tapering of the ‘money printing’ program starts, we will see a corresponding deflation.
That puts Prime Minister Abbott and Treasurer Hockey in a tight spot. They need to talk up the ‘booming’ economy (something Hockey failed to do early in his tenure, when he appeared to think he was still in opposition) to boost domestic consumption and the investment needed to service it, while at the same time getting cracking on reforms to stimulate the growth sectors of the future.
In the third ‘Building the Lucky Country’ report from Deloitte, five sectors, in addition to mining, were identified as key drivers of future prosperity – agribusiness, natural gas, tourism, international education and wealth management.
The currently resurgent dollar (now at 95 cents) will continue to frustrate the first four, but in the longer term that dollar is likely to fall when the Fed tapering begins. That gives the government an added incentive to talk up, and where appropriate assist, the industries of tomorrow.
What a tragedy it will be, for instance, if the food processing industry – on which large volumes of value-added exports will rely – is allowed to fall into disrepair or plant closures just before its time arrives to step up as major national industry.
As Robert Gottliebsen detailed recently, US-owned frozen vegetable processor Simplot is dramatically upgrading and rationalising its operations, under the protection of three-year higher-priced purchasing agreements with Woolies and Coles (How Coles and Woolworths are revolutionising food processing, October 31).
That’s a welcome development. So too is a separate deal signed last Wednesday between Coles and SPC Ardmona to take Victorian fruit over lower-priced imported fruit.
Both of these look, to this commentator, like the nervous actions of the major supermarket retailers who are feeling growing pressure over their duopoly market power, and the effect it has had on such supply chains in recent years.
No matter. What counts is that an industry that has a long-term viable future, but which like everything else is being smacked around by the weird global capital flows of the post-GFC era, will be poised for growth when the dollar finally settles lower.
Tony Abbott was a master of the photo-opportunity in the lead up to the 2010 and 2013 elections. In those periods it was hard-hats, fluoro vests, and the constant misrepresentation of the scale and nature of the ‘carbon tax’ impost on the economy. It was smart politics, but tended to swamp and ignore much more important issues.
In government, Abbott should be out there in overalls picking fruit, in a hair-net packing chopped spinach; shaking hands with uni professors and, for a change, praising their efforts to expand their teaching into Asia; sailing an LNG tanker out to sea; and visiting wealth management offices of Australian banks and financial institutions in Bangkok.
In short, using the photo-op for good, not evil.