Key economic forecasts released by Treasury from the 2011 Budget
are as follows:
The 2010/11 Budget deficit is expected to be $49.4 billion or
3.6% of GDP. This is $8.6 billion higher than originally forecast.
A deficit of 1.5% of GDP is forecast for 2011/12 and then a return
to surplus (+0.2% of GDP) in 2012/13.
Domestic natural disasters, coupled with the events in Japan
and earthquakes in New Zealand are expected to reduce growth by
0.75% this financial year.
Growth is then forecast to strengthen to 4% in 2011/12 and
3.75% in 2012/13, again led by a record level of investment in the
resources sector and continuing demand from China and other trading
The unemployment rate is expected to decline to 4.50% by June
2013, adding to wage pressures and hence inflation. Underlying
inflation is expected to rise from around 2.25% to 2.75% in June
2012 and 3% in June 2013.
Household consumption is expected to improve from 3% growth in
2010/11 to 3.5% in 2011/12 and 2012/13 in line with buoyant labour
market projections and predicted wage rises.
Dwelling investment though is expected to remain subdued, with
growth of 1.50% forecast for 2011/12 and 3% in 2012/13.
Treasury projections remain very much influenced by the
extraordinary resources boom driving record commodity prices and
unprecedented levels of investment in mining and energy. The
projections that underlie the forecast are based on the main buyer
of our commodities, China, growing at a rate of 9.5% in 2011 before
moderating to 9.0% in 2012.
Treasury notes the main risks in China as:
"being centred on
controlling inflation and managing inflation expectations.
Inflation is being driven by high food prices and excess liquidity.
Despite recent increases in the reserve requirement ratio and
interest rates, further tightening is likely, with the attendant
risk of an overcorrection.".... Source: Budget Papers,
In the short term Treasury's views seem reasonable, but the
key medium term risk has perhaps been ignored. By way of
background, the Global Financial Crisis initially hit China hard
– export orders collapsed overnight, threatening the jobs
of millions. To its credit, Chinese authorities reacted swiftly,
implementing a massive stimulus package focused on fixed investment
(roads, rail, buildings, airports, apartments etc). This ensured
that China's economy avoided a recession. But the boom in fixed
investment has been unrelenting. In 2009/10 it was around 47% of
GDP and in 2010/11 it has increased further to around 50%. China
now has too many buildings (government and residential), many lying
empty, as well as vast rail and road networks heavily
under-utilised. There have also been reports of new aluminium
smelters lying idle to prevent a global price rout.
In short, the investment has been excessive. When Chinese
policymakers come to the realisation that the country doesn't
need anymore apartments, roads or trains for a long time then two
things are likely. Firstly, investors in the real estate and
infrastructure boom will derive little or no return and go broke,
leaving a trail of bad debts. Secondly, demand for raw materials
(resources) will fall. This of course, is where things may turn
ugly for Australia.
The current resources boom has triggered an unprecedented supply
side response. Not only are Australian companies investing billions
to increase capacity as fast as they can, the rest of the world is
doing the same to take advantage of record commodity prices. If
demand from China falls away at the same time as the vast amounts
of new supply come on stream, then clearly commodity prices will
fall heavily (unless the rest of the world has recovered
sufficiently to take up the slack - perhaps unlikely given the
sovereign debt problems that prevail in much of the developed
world). This is a looming risk to Australia's growth prospects
- but one where the timing is highly uncertain.
An actuarial review of the Invensys Australia Superannuation Fund showed it to be in surplus to the tune of $189.2 million. In mid 2003, the Invensys Group proposed to the trustee that the surplus be repatriated to the principal employer in the group.
Lenders in New South Wales breathed a sigh of relief earlier this month when the Supreme Court ruled in Bank of Western Australia Ltd v. Primanzon  NSWSC 862 that two part-time commercial property investors could not claim relief under the Contracts Review Act 1980 (NSW) because the loans advanced to them were entered into in the course of a trade, business or profession carried on by them.
A key aspect of an innovation culture is keeping it active at all levels of management, from teams to board meetings.
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