The Australian economy is currently being buffeted by a number
of conflicting factors.
Low interest rates have encouraged moderately strong credit
growth that has translated into a surge in both house prices and
residential construction. In turn higher house prices combined with
higher share prices have made consumers feel wealthier, supporting
consumption. The flow through effects into the broader economy,
while modest to date, should continue while credit growth remains
elevated. In addition, the recent fall in the AUD will begin to
provide some assistance to the beleaguered import competing
These positive developments are now being challenged by a sharp
fall in commodity prices as signs emerge that China's debt
fuelled property (and infrastructure) boom have peaked. Given the
significant contribution made by mining to Australian economic
output, this will inevitably create a drag on growth.
This structural problem in China has been a long time coming,
fuelled by artificially low interest rates that have promoted
massive over investment into, in many cases, unproductive
investments. By way of explanation, the nominal lending rate should
roughly equal the nominal GDP (real GDP plus inflation) rate over
the medium term. However in China the lending rate has been much
lower for many years. Until recently investors have been able to
borrow money (in percentage terms) in single digits while nominal
growth has been well over double digits, creating a windfall for
investors. These days now appear to be almost over. While credit is
still too cheap in China, efforts to reflate China's economy by
relaxing credit standards have been met by opposition from the
People's Bank of China who are already concerned about rising
bad debt risks.
This would imply that the end of cheap money is nigh. China is
running out of options to keep the boom times going. Further
monetary or fiscal stimulus could delay the day of reckoning, but
will only exacerbate the existing problems. This is why China might
decide to address its debt burden by bailing out banks, and local
government financing arms. This option, however, would involve a
sharp increase in government debt, which would inevitably slow the
rate of future growth. So regardless of the option China takes to
tackle its problems, the likelihood of a significant impact on
Australia is high. Inevitably demand for exports such as iron ore
and coal will fall, decreasing the ability of mining to continue to
prop up domestic growth. Further, China has recently signalled that
it intends to significantly increase the use of renewable energy
which has major long term ramifications for our coal industry.
In the short term we believe growth in the non-mining sector is
now sufficiently robust to offset the sharp downturn in mining,
although the growth rate will inevitably be lower. Over the medium
term we remain concerned about the sustainability of the current
drivers of growth. House price growth spurred by an increase in
household debt rather than any corresponding improvement in incomes
or wealth is always fragile and unsustainable. When interest rates
eventually rise, the risk factors for the Australian economy will
inevitably increase commensurately
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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