From Bust to Boom

Andrew Pegler – 12 March 2010

Last month saw a record 20% rise in the ANZ job ad index. The latest NAB business confidence survey figures are the highest they’ve been in eight years and retail spending is up. This latest round of data continues a dazzling turnaround for the Aussie economy that has taken us from fears of a bust to threats of a runaway boom. But alas there’s a down side.

Basically we’re back to where we were before GFC with a mining boom threatening to overheat the economy and drive up inflation. Yep, Australia is going off; this ain’t Dutch courage it’s vegemite verve. Our unemployment rate is a world-beating 5.3% and NAB is tipping 4.75% by end of 2010 and 4.25% by end of 2011. In addition, with lending getting a lot easier, investments and growth are really starting to get rolling. And things are only going to get better with growth momentum strong in China and Asia and improving in Japan and the US. Only Europe continues to disappoint with the risk of sovereign default. But it’s not all good news because as these post-GFC green shoots grow into shrubs parasitic weeds are forming in the undergrowth. These include a startled Reserve Bank, a high AUD and an ongoing rise in house prices.

Let’s start with a startled Reserve Bank. A runaway boom is not good and the RBA will want to clip its wings a tad with a rate rise or two. As I have discussed before, putting the rates up slows down the economy as people have less money to spend, which constrains inflation. I predict hikes of around .25% in May, July, and November to close the year at around 4.75%.

Another big issue is what this is doing for our currency. The higher the AUD goes, the more expensive Aussie goods and services are to people overseas. This means some very hard times for exporters, the tourism sector and international education.

And of course more money floating around the economy means more fuel for the bonfire that is sending hopes of home ownership up in smoke. Sorry.

And in other news… Mexico’s Carlos Slim Helu is now the world’s richest man with $53.5 billion in assets, edging out Bill Gates and signalling the rising wealth of developing nations. With more than 200 businesses he shapes virtually every industry in Mexico including telecom, retail, energy, tourism and banking. BTW Bill Gates was second with $53 billion, and Warren Buffett came third with $47 billion.