The Distillery: Growing pains

Jotters point to warning signs behind the latest GDP figures, with one saying more rate cuts will have to be considered if the dollar doesn't fall.

Yesterday’s GDP result was enough to burn the shorters of the Aussie dollar and most likely take an October rate cut off the table. But look deeper into the numbers and it’s clear danger lurks, according to one commentator. Indeed growth, or lack thereof, has the commentariat warning of an unpleasant economic honeymoon for leader-in-waiting Tony Abbott and a need for the Reserve Bank to maintain an easing bias.

Fairfax’s Malcolm Maiden pinpoints the warning signs littered through the national accounts. If the country was a business and the Labor government was the board, it would be facing disgruntled shareholders.

“Real net national disposable income is GDP recalculated to take into account movements in the terms of trade, offshore payments including interest on overseas borrowings, and offshore receipts including dividends. It is about as close as you can get to a net profit in the national accounts, and it is losing its mojo… Growth since 2004-2005 has been 27.2 per cent, and since Labor's election in 2007-2008 it has been 15.7 per cent… The headline GDP growth numbers surprised slightly on the upside on Wednesday, and Labor can argue that the full force of a lower Australian dollar and low interest rates is yet to be felt. Executives who preside over an earnings slump risk being sacked, however.”

The Australian Financial Review’s Geoff Kitney expands on this point, highlighting why the Labor government has lost public trust on the economy.

“Rudd tried to turn the debate about the growth challenge ahead Labor’s way by arguing that the greatest risk of a slide into recession was Abbott’s plan to cut government spending. But Rudd is fatally handicapped by the legacy of public distrust, with its origins in Labor’s decision to dump him in 2010. That confidence-shattering episode explains why voters see Labor’s record very differently to foreign commentators who cannot understand why Australians rate so poorly a government seen by them as having done better than most in coping with the worst global economic crisis since the 1930s. This is political good news for Abbott and Joe Hockey, except for one thing. The sluggish economy is about to become their problem.”

Kitney’s colleague at the AFR, economics editor Alan Mitchell, continues the theme, though he notes there are at least no nasty shocks to disrupt economic plans.

“Tony Abbott will be relieved, and so will the Reserve Bank. The economy’s real growth in the June quarter was almost exactly as the Reserve Bank predicted, while nominal GDP – a critical number for the budget – was perfectly aligned to meet the Treasury’s latest budget forecasts. There are no ugly economic surprises to add to the fiscal consolidation task awaiting Abbott on Saturday.”

The Age’s economics editor, Tim Colebatch, leaves politics out, instead looking forward on what this means for rates.

“These figures won't change what anyone thinks about the economy. At first sight, they don't tell us anything new that is likely to reverberate in the final days of the election campaign. But they will warn the Reserve Bank that the "green shoots" of recovery it sees are still tiny. While the Reserve officially no longer leans towards another rate cut, this data sends a clear message that another cut must be on the books unless the dollar keeps falling and we see a clear pick-up in the figures for employment, housing and retailing in coming months.”

While growth was in the spotlight, the Future Fund’s managing director made the decision to slip into the sunset, but it didn’t go unnoticed. Mark Burgess’ two year reign will likely come to an end around the end of the year after a successor is found and he leaves following a strong reported return earlier this week. According to Business Spectator’s Stephen Bartholomeusz, Burgess’ departure signals a new phase for the Fund, one simpler and less challenging than the last. The Australian’s John Durie joined the chorus of praise, noting the contribution of Burgess to the now maturing Fund.

Moving back to politics and The Australian’s David Uren bemoans the lack of visionary economic policy provided during this year’s election campaign. Using the contest between Paul Keating and John Hewson two decades ago as a point of comparison, Rudd vs Abbott falls a long way short, he maintains.

Finally, the AFR’s Philip Baker provides an analysis of recent market moves and finds where the greatest gains where to be tapped. 

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