By Alex Tarrant
Finance Minister Bill English says he is now less worried about the economic outlook for Australia and China following a trip across the Tasman to inspect mining developments in Queensland and Western Australia.
But it is not enough for the government to feel any more comfortable about its own surplus track forecasts. English said meeting the government's 2014/15 target would be "a bit of a challenge," although new Treasury forecasts to be released on December 18 would show the government was still on track.
His comments follow similar ones from Prime Minister John Key on Monday. Key said he was "not uncomfortable" with what he had recently seen from Treasury relating to the new forecasts.
Aussie outlook
While Australian investment in mining projects would fall off recent highs, it would drop to a sustainable level, English told media in Parliament Buildings on Tuesday morning. An Australian ability to sell natural resources into China and India would underpin economic activity, and boost New Zealand's prospects as well.
“In Australia you’ve had very high and unsustainable levels of investment in resources. It’s dropping back, but even when it drops back it’ll still be quite high levels of investment going on, both into gas, and iron ore and coal," English said.
“It’s slowing down, but it’s slowing down to sustainable levels," he said.
“They’ve got a pretty positive view of the outlook for China, and also for India. That matters to us because if Australia can develop its resources, feeding China and India, then they’ll do better. And we do well when they do well."
English was a “wee bit less worried" about the outlooks for Australia and China than he was before the trip.
“Australia’s just catching up with New Zealand in the sense that it’s just starting now to focus on competitiveness and productivity, which we got onto three or four years ago," he said.
English's trip included meeting the premiers of Queensland and Western Australia, as well as mining and resources companies and sector groups.
“A large part of Australia’s success story in recent years has been the performance of the resources sector. This visit will give me the opportunity to talk directly to the people who are taking the commercial risks and learn about their expectations for the future, while also seeing first-hand the scale of some of their operations," English said before he left in late November.
He was accompanied on part of the visit by a small delegation of New Zealand businesspeople, comprising of Truescape CEO Sam Chaffey, Rocklabs head of mining Brad Hunting, Gallagher Security director Rob McJannett, ITL general manager Colin Fromont, Beca Group director of industrial markets John Boers and Metraweather CEO Peter Lennox.
In September, Prime Minister John Key told a business audience in Japan that the government believed Australia had 'Dutch disease', a term for the effect large inflows of foreign currency investment into a country's natural resource sector has on driving up its currency, to the detriment of other export industries and its manufacturing sector.
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RBA cuts:
Statement by Glenn Stevens, Governor: Monetary Policy DecisionAt its meeting today, the Board decided to reduce the cash rate by 25 basis points to 3.0 per cent, effective 5 December 2012.
Global growth is forecast to be a little below average for a time. Risks to the outlook are still seen to be on the downside, largely as a result of the situation in Europe, though the uncertainty over the course of US fiscal policy is also weighing on sentiment at present. Recent data suggest that the US economy is recording moderate growth and that growth in China has stabilised. Around Asia generally, growth has been dampened by the more moderate Chinese expansion and the weakness in Europe.
Key commodity prices for Australia remain significantly lower than earlier in the year, though trends have been more mixed over the past few months. The terms of trade have declined by about 15 per cent since the peak, to a level that is still historically high.
Sentiment in financial markets remains better than it was in mid year, in response to signs of progress in addressing Europe's financial problems, though Europe is likely to remain a source of instability for some time. Long-term interest rates faced by highly rated sovereigns, including Australia, remain at exceptionally low levels. Capital markets remain open to corporations and well-rated banks, and Australian banks have had no difficulty accessing funding, including on an unsecured basis. Borrowing conditions for large corporations are similarly attractive and share prices have risen since mid year.
In Australia, most indicators available for this meeting suggest that growth has been running close to trend over the past year, led by very large increases in capital spending in the resources sector, while some other sectors have experienced weaker conditions. Looking ahead, recent data confirm that the peak in resource investment is approaching. As it does, there will be more scope for some other areas of demand to strengthen.
Private consumption spending is expected to grow, but a return to the very strong growth of some years ago is unlikely. Available information suggests that the near-term outlook for non-residential building investment, and investment generally outside the resources sector, remains relatively subdued. Public spending is forecast to be constrained. On the other hand, there are indications of a prospective improvement in dwelling investment, with dwelling prices moving a little higher, rental yields increasing and building approvals having turned up.
Inflation is consistent with the medium-term target, with underlying measures at around 2½ per cent. The introduction of the carbon price affected consumer prices in the September quarter, and there could be some further small effects over the next couple of quarters. Partly as a result of that, headline CPI inflation will rise above 3 per cent briefly. Looking further ahead, with the labour market softening somewhat and unemployment edging higher, conditions are working to contain pressure on labour costs. A continuation of moderate wage outcomes and improved productivity performance will be needed to keep inflation low, since the effects on prices of the earlier exchange rate appreciation are now waning. The Bank's assessment remains that inflation will be consistent with the target over the next one to two years.
Over the past year, monetary policy has become more accommodative. There are signs of easier conditions starting to have some of the expected effects, though the exchange rate remains higher than might have been expected, given the observed decline in export prices and the weaker global outlook. While the full effects of earlier measures are yet to be observed, the Board judged at today's meeting that a further easing in the stance of monetary policy was appropriate now. This will help to foster sustainable growth in demand and inflation outcomes consistent with the target over time.
Over here on the other side of the ditch it is easier to see the (somewhat entertaining) disconnect between the rhetoric from mining companies and the massive downturn in both investment and commodity prices, together with some rather dizzyingly steep falls in profit and investor confidence in the Australian commodities sector.
It's pointless visiting the mining companies to check out how they are doing - of course they are going to be bullish and upbeat. English should have saved the NZ taxpayer some wasted dollars and sat at home crunching the statistics from the last year on Australian commodities and reading some of the wel-researched analysis of the sector by Investment Banks and other financial houses that have a vested interest in knowing where the sector is going.
What a ridiculous waste of time and taxpayer money.
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