Thursday, March 06, 2008

Australia's weakest economy

“When you are being beaten by NSW you know you are a loser”

The ACT is the worst-performing economy in the country according the latest Australian National Accounts released yesterday.

They show (on page 7) that state final demand grew by just 0.2 per cent in trend terms in the December quarter, less than in any other state. Even in New South Wales, traditionally regarded as the basked case among Australian states, state final demand grew by 1.0 per cent.

In the year to December the ACT's state final demand grew by 1.7 per cent in trend terms, also the worst result in the country, well behind the national average of 5.3 per cent.

The Canberra-based director of Access Economics who specialises in measuring state economies, Chris Richardson said the ACT figures were bleak.

“When you are being beaten by NSW you know you're a loser,” he told the Canberra Times...

The construction boom in the ACT had passed its peak. And consumer spending was more restrained as well.

“It can't be our incomes. The ACT has high incomes,” Mr Richardson said. “But we are also more highly mortgaged than most.”

“And perhaps we are better informed. I suspect that Canberra saw the inevitably of further rate rises in the December quarter, before the rest of Australia. Our mortgage holders were probably a little earlier to react than most.”

If so, Canberra residents are behaving as the Reserve Bank would like all Australians to behave, “throttling back without throttling,” in Mr Richardson's words.

The ACT Chief Minister Jon Stanhope rejected the Statistician's interpretation of the ACT's economic health, publishing instead a different measure not presented by the Bureau of Statistics.

He said that measure, trend state final demand “in year on year terms to the December quarter”, grew by 3.5 per cent, well below the Australian average but not absolute bottom, being above the results for South Australia and the Northern Territory.

He said the figure was “a strong result” that confirmed “the strength of the ACT economy, with high levels of activity, record high levels of investment and a robust labour market”.

A record $5.3 billion of investment was recorded during 2007 and non-dwelling was the second highest on record, after 2006.

Mr Richardson said that until now strong economic growth in the ACT had had two supports. One, construction, was easing back. The other was the boom in government spending and public service employment.

Its future lay in the balance, pending the outcome of the Finance Minister's razor gang to be announced in the May budget.

The Commonwealth Treasurer Wayne Swan said the make up of the national accounts strengthened his determination to “look out for wasteful expenditure, to eliminate it, and to direct it towards enhancing the productive capacity of the economy.”

The economy as a whole grew by 3.9 per cent in the year to December and 0.6 per cent in the December quarter, but domestic demand accelerated to grow by a seasonally adjusted 5.7 per cent over the year and 1.6 per cent in the quarter.

At the same time productivity growth stalled.

“The national accounts show there was no productivity growth whatever over 2007. That's right, zero productivity growth in 2007. And over the last five years, average productivity growth has been lower than in any other equivalent period in the last 16 years.”

“When productivity began to turn down inflation began to tick up. And that is the story that the Rudd Government is dealing with,” Mr Swan said.