Australia: Australian Economy - Economic & Market Outlook - As at 31 March 2012

Last Updated: 13 April 2012
Article by Martin Fowler

Australian Economy

An interesting debate has been unfolding in recent months as the high Australian dollar continues to take its toll on import competing manufacturing industries, with job losses and business closures escalating. This has led to growing criticism of the way key policymakers, namely the Reserve Bank of Australia (which sets monetary policy) and the Government (responsible for fiscal policy) have been handling the economy.

State of the Economy
Before we wade into the debate, it is important to gain perspective on the performance of the economy. Key recent economic data releases are as follows:

Economic Growth
The economy grew by a modest 0.4% in the December quarter and by 2.3% over the year. Given that trend growth is about 3% per annum, the current rate of growth is below average. Yet this conclusion is somewhat misleading because economic growth consists of domestic growth plus external trade (the value of exports less imports). An analysis of this data provides a different outcome:

Economic Growth, calendar year ending 31 December 2011: %
Domestic growth (gross national expenditure): 4.8%
Plus: Exports minus imports (2.5%)
Economic Growth (GDP) 2.3%

This data shows that domestic demand remains moderately strong. Imports have been abnormally large (primarily due to the large value of capital imports being used to assist with the construction of the vast amount of resource projects underway) which has reduced the headline growth figure.

Household Consumption
Household consumption spending increased by 0.5% over the December quarter and by 3.5% over the year. The average rate of growth over the last 12 years has been around 3.4% so it is very close to trend (although below the rates of growth experienced pre GFC). This is an interesting finding because the argument most often used to support the view that the economy is in a rut is the rate of retail sales. While it is true that retail sales levels remain below trend (retail sales rose 0.3% in January), they form only a part of household consumption. Households are increasingly reducing their spending on clothing and footwear and allocating more to overseas holidays and services (whether this proves to be a temporary shift in preferences remains to be seen).

With an increasing number of manufacturing jobs being made redundant, the most obvious data point that would reflect that trend would be in the unemployment rate. Although there was a rise of 0.1% in February to 5.2%, a definitive trend of higher unemployment has yet to emerge. This may indicate that a large percentage of displaced workers are finding new employment in those areas of the economy that are still growing (mining and health services).

Business and Household Credit
One area of the economy that unquestionably remains in the doldrums is business credit, which fell by 0.2% over January and grew by only 1.4% over the year. Personal credit too remains very weak, falling by 0.2% in January and by 1.3% over the year. Housing credit has been somewhat better, rising by 0.5% over January and 5.3% over the year, but this too remains well below average. After years of excessive leverage, we continue to view these outcomes positively. Although low levels of credit do not assist economic growth, businesses and households need to improve their balance sheets by reducing debt to more sustainable levels. On average, most large companies and the majority of small businesses have done a good job of improving their balance sheets already. Indebted households though have a long way to go.

Disposable Incomes
National disposable incomes fell by 0.9% over the December quarter but still managed to rise by 4.9% over the calendar year. As disposable incomes are rising at a faster rate than private consumption expenditure (which was 3.5% over the year), the difference shows up in the savings ratio (+9.0% in the December quarter, which remains well above the 10 year average of +4.5%).

The Consumer Price Index remains the key headline measure for inflation. This index rose by 0.6% in December and by 3.1% over the year. While this is just outside the RBA's inflation target of 2 – 3%per 3 annum, the RBA's preferred measure of underlying inflation (the trimmed mean) rose by 2.6% over the year (almost in the middle of the range).

The slowdown in China will continue to reduce the terms of trade and possibly delay some mining projects that are in the planning phase. A slowing growth profile in the mining sector may well lead to some easing in the Australian dollar, which should provide some minor relief to manufacturers. Consumers, still battling high levels of household debt, will continue to be cautious but further rate relief may not be far away which should support modest rates of consumption. Overall, the sheer number of mining projects under construction will still support a moderate rate of growth, albeit a rate that is likely to be below trend (between 2-3%).

Without doubt the biggest losers from the high Australian dollar have been import competing tourism and manufacturing industries. The high dollar has made it difficult for them to compete with overseas competitors. This in turn has generated criticism of the both the RBA (by not lowering interest rates by enough) and the Government (by introducing new taxes at a time when manufacturing can least afford it) in not doing enough to protect these industries.

Critics argue that the RBA has not gone far enough to lower interest rates which would, in part, put some downward pressure on the AUD and reduce borrowing costs (for business this means lower costs; for consumers this means more disposable income that could be allocated to buying goods produced by manufacturers).

In responding to this argument, we need to remember that the RBA's core objective is price stability. In 1993, this was defined publicly by the then Governor, Bernie Fraser, as a rate of inflation which was held to an average of 2-3 per cent per annum. In the last few years the RBA has been concerned that the mining boom and the huge level of planned investment expenditure in the pipeline could well translate into an outbreak of inflation. Recent inflation data would suggest that inflation remains contained and with growth in China now showing definite signs of easing (which has translated into lower commodity prices and may end up in reducing investment expectations in that sector), there is now some scope to potentially reduce rates modestly from here. Yet this assumes that growth will moderate from here - but the data (particularly unemployment and domestic demand figures) does not yet confirm that a slowdown is actually evident - so the criticism of the RBA (in our opinion) is largely unjustified.

Addressing the criticism levelled at the Government for introducing new taxes at the time when manufacturing can least afford it is more complicated. Of course raising taxes to fund expenditure 4 commitments is never easy or popular – but a necessary pre-condition to avoid the solvency problems that many other governments are in. Opinion will always differ on the best mix of taxes to fund expenditures. The court of public opinion will ultimately rule on this at the next election.

Related articles...

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions