Global discombobulation seems to be the order of the day as we face 2017. Some bizarre politics, terrorism, mistruths about free trade and globalisation, digital disruption, polarised incomes and wealth, and more – are all making many of the world’s 7.4 billion people fearful. It was a strange 2016 and there seems to be no guarantee the year about to unfold will be any saner.
The world economy is slowing a little, but not collapsing, with 2.6% GDP growth expected as we open a new calendar year in 2017. The world is polarised in terms of growing versus stalled economies, and there is a widespread shortage of statesmen or stateswomen. Vision, hope, courage and leadership are in short supply. Even where it exists, such leaders often face internal criticism as we see in Germany. But other nations, such as New Zealand and Canada, have had – or still have – bold and popular leaders.
The recent federal election in the United States epitomised the generalised dilemma. The choice for president was between the unpalatable and the unacceptable. Non-compulsory voting meant that of some 250 million eligible voters, fewer than 60% bothered to vote. But those that did, voted for change from the politics of recent times; and a self-proclaimed demigod in the form of Donald Trump with many promises impossible to implement. The old saying: be careful what you wish for comes to mind. The United States, if not the world, is sailing into uncharted waters as they say.
Sabre rattling, a well-known distraction technique when an economy is not going well, surfaced in two big nations in 2016. The UK filed for divorce from the moribund EU federation of central and western European economies; and divorces are usually painful. Meanwhile, the Philippines elected a strongman as President with 19th Century solutions to crime: in this case, a response to drug-related criminal activity via rough justice.
Much of South America was reflecting its traditional heady cocktail of politics, class warfare and volatile economics. Economic collapse in Venezuela, declines in Brazil and Argentina’s GDP, and slow growth elsewhere meant it was not a happy year for this region. You can also add in some political instability in the case of Brazil.
Africa was a mixed bag, as usual, with honest and competent governments and strong economic growth to be found in only a minority of its 49 nations. The Middle East continued as a regrettable mess of western interference (well-meant or self-seeking), tribalism, internecine religious hatred and civil war, all of which contributed to human suffering and the migration of people in huge numbers: millions. Low oil prices have exacerbated the situation, with even wealthy nations such as Saudi Arabia unable to balance their budgets.
Our own region, the Asia Pacific, is the best placed of the world’s eight geographic regions; more so if we include the Indian subcontinent nations to make up the bigger Asian mega-region. Three-quarters of our trade, immigration and tourism takes place in this mega-region, so we are already well-integrated. The area is not only the world’s largest economic region, but also its most populous, representing about 57% of the world’s population. It is also the fastest growing, at almost 6% in GDP in 2016, and continuing into 2017 at over 5.5%.
Yes, mineral prices, going mostly to Asia, have taken a steep dive in recent years, but production volumes have continued to grow and are likely to do so for most years into the late 2020s.
And if we could only get our act together and attract more than the tiny 1% of Chinese overseas tourists we do now, our tourism receipts could challenge our total mineral earnings within a decade or so. After all, services are the world’s fastest growing traded products, as well as now representing the largest share of advanced economies such as Australia.
All of which leads to Australia’s prospects in 2017.
Given that we are in a market-led economy in the post-industrial age of the past half century rather than the production-push (supplier-hegemony) in the industrial age up to 1964, it is important to start with the marketplace. The main aggregates are shown in the chart below.
Consumption expenditure dominates, accounting for over 60% of the total market, and has never experienced a decline in any year over the past six decades. It has therefore never caused a recession. It won’t in 2017 either, with expected growth of just under 3%. Exports, accounting for a sixth of the market, very rarely go negative. Exports have been growing at more than 6% annualised for several years now, and have also never caused a recession in living memory, and should grow by more than 4% in 2017.
Which leaves capital expenditure, at over a fifth of the market, which is easily the most volatile segment and the only one that causes recessions. But even then, total capital expenditure has to fall by more than 8% in a single year to do that. It was down around 4.5% in 2016, and is unlikely to sink more than 8% in 2016-2017, but could do so in either calendar 2017 or 2017-2018. But it doesn’t have to if the fall in mining capital expenditure and probable easing of housing capital expenditure (during 2017) are offset by government investment in infrastructure (hopeful and indeed likely) and a lift in private investment in equipment and IP (particularly related to the new digital era).
Any recession is more likely in 2017-2018 than 2016-2017 or even calendar 2017.
In some ways, we need a recession as a wake-up call for the constant failure of successive governments to address much needed reform in the labour market, fast broadband connectivity and speed (as part of the new digital era), fiscal reform and taxes, energy policy, parliamentary reform (especially the undemocratic Senate, or at least its veto powers). And the country needs pragmatic vision and goals rather than platitudes and rhetoric. We haven’t had such wake-up calls since 1982-83 and 1992, well over a generation ago.
Fortunately, the nation has a war-chest of past achievements and ongoing luck to offset some temporal disruption and pain if these issues are tackled. These achievements include our standard of living, highly liveable cities, relatively high consumer and business confidence, a society fairly free from racial tension, low national debt, near-full employment and the fact that we are creating well over six times more new jobs than we are losing every five years.
We just need visionary, pragmatic and courageous leadership at federal and state levels. We have some shortfalls in these attributes, as do a lot of the countries in this weird world of ours. But we will get them, one way or another, sooner or later. We always do. Hopefully without the need to have a recession this time.
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