Don't let the prophets of gloom get away with it

Articles and op-ed

Published in The Australian

15 December 2012

THERE'S a battle outside and it's ragin'. It's a battle between those who want to build consumer and business confidence and those who want to smash it.

Australia's growth and employment prospects for the next year or two will be undermined if wreckers irresponsibly talk down our economy.

Despite six reductions in the cash rate by the Reserve Bank, the Australian dollar remains well above parity with the greenback. This is putting pressure on many Australian industries that rely for their profits on exporting, or on competing against imports.

The high Aussie dollar is a vote of confidence by international investors in the future of the Australian economy. Australia's ongoing integration with the rapidly growing economies of Asia makes our nation a good play for those seeking a stake in Asia's future while enjoying the stability and predictability of our governance, legal system and other institutions.

Foreign central banks and foreign corporations are now issuing bonds denominated in Australian dollars as our dollar increasingly takes on the attributes of a reserve currency.

While consumer confidence has lifted over the year, business confidence has slumped. It is true some areas of the economy are doing it tough. But is this confidence slump entirely warranted when the most recent quarterly growth figure of 0.5 per cent confirms annual growth at a healthy 3.1 per cent?

Confidence is fragile and can be easily shattered by politicians, business representatives and commentators talking the economy down. Opposition Treasury spokesman Joe Hockey seemed to have this purpose in mind when he described the most recent Reserve Bank cash rate reduction as returning interest rates to "emergency lows".

That term was used by Wayne Swan during the global financial crisis that caused the deepest global recession since the Depression. There is no such crisis now and for Hockey to seek to draw such parallels in the minds of consumers is inimical to business profitability, job creation and the national interest.

This follows Tony Abbott's confidence-destroying scare campaign about the economic impact of the carbon price. The unrelentingly negative Opposition Leader has gone as far as to suggest that the economy is not growing at all.

The Reserve Bank has been pointing to some very positive developments. Productivity growth has picked up and a key measure of competitiveness – real unit labour costs – is close to its lowest level since records began in 1985.

Contrary to claims by some business representatives, industrial disputation is well below the levels of the previous government, and is dominated by public sector disputes against the NSW and Victorian state governments.

As to the idea of returning to the so-called good old days of the previous Coalition government, Reserve Bank deputy governor Philip Lowe pointed out last week that during the period of the mid-1990s to the mid-2000s consumer spending outstripped income growth, a situation that "could hardly be said to be normal or sustainable".

Access to easy credit pushed up house prices and, built on these temporary increases in wealth, householders spent even more on consumption. In other words, Australia was living off a housing bubble that made people feel wealthy – and they spent up accordingly. Just when the housing bubble began deflating the first mining boom struck, producing rivers of gold from overseas.

It all came to a shuddering halt with the GFC. A big shake-out occurred and we are now returning to more normal and sustainable economic times.

This is not the bad news the Coalition and some business organisations are portraying.

But it can become bad news if they succeed in smashing consumer and business confidence for their own purposes.

For the sake of jobs and prosperity, the battle must be won against those who, with whatever motive, relish talking down the economy. The optimists enter that battle with a set of good economic developments in their arsenal. But, as always, it's the pessimistic view that makes for good media stories.

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