ECONOMY FARING WELL IN VICTORIA AND AUSTRALIA

Both Australia’s and Victoria’s economies are faring well and the outlook for 2010 is really positive for them despite USA and Europe still being depressed with a much slower recovery predicted according to the Reserve Bank of Australia’s Head of Economic Analysis, Dr Tony Richards.

Dr Richards made these comments to economists and representatives of companies and business organisations, including the Geelong Chamber, during his regular quarterly briefing on the RBA’s Statement of Monetary Policy for February 2010 in Melbourne last month.

He said that the Australian economy has continued to perform better than had been expected which is supported by stimulatory settings of monetary and fiscal policy, high population growth, strong trade links with Asia, and a sound financial system.

While the global decline in GDP was 0.8 per cent in 2009, and USA showed negative growth of 2.4 per cent, Australia’s GDP grew by 1.5 per cent over the first three quarters of 2009 with expanding growth again predicted for the December quarter.

Further, business confidence and business investment in Australia are both “up and growing” and unemployment is much lower than predicted earlier and the creation of many new jobs just adds to the positive outlook. It was pleasing to hear that Victoria accounted for the bulk of the increase in aggregate employment in Australia over the second half of 2009.

Tony reported that the average hours worked has increased to 34.1 hours per week, despite a drop earlier in 2009, which has confounded many economic and employment commentators who were saying that underemployment, or lesser hours being worked by employees in their jobs in an effort to keep them, was shielding the real message about unemployment in Australia!

However, current unemployment in Australia is down to 5.3 per cent, which is 0.2 per cent lower than in last December, and when one compares this figure with 9.7 per cent unemployment in USA (14.8 million out of work), and still showing no real signs of improving, the comparison of the two economic situations is stark!

Despite the better employment figures, wage growth in Australia has been contained.

Consumer confidence in Australia has also increased sharply and is up to record levels. This more confident outlook by families has translated into improved retail sales growth of 3.5 per cent for 2009 which is getting back to earlier peak levels.

A number of Geelong retailers have reported that their sales for 2009 are better than they expected earlier in the year and that the calendar year results should improve over those in 2008.

The RBA’s prediction for the Australian economy for 2010 is a growth of 3.25 per cent compared to 2.7 per cent for USA and 3.9 per cent globally.

Inflation, which is one of the real indicators of concern to the RBA, has moderated in the past year and, in underlying terms, inflation is running at around 3.25 per cent, down from just over 4.5 per cent at the end of 2008. The better-known inflation factor, CPI, is currently at 2 per cent.

Concluding his briefing also on a happy note, Dr Richards said that the RBA board’s decision not to increase the cash interest rate at its February meeting took most, if not all, economic analysts and commentators by complete surprise but it “highlighted the interesting times that we live in!”