According to many major news outlets and financial commentators in Australia, the recent trade data released by the Australian Bureau of Statistics (ABS) is proof that the Australian economy is “booming”. The Reserve Bank also seems to think the nation is in the midst of a boom and the amazing Ken Henry (of where is my tax report fame) reckons Australia will enjoy a “golden age” for decades.
Australia’s leading economists also believe that the Chinese economic miracle will shower our nation with treasures for many years to come so it appears we can all relax. We just need to keep a lid on inflation, but never fear, the RBA Governor stands ready to crank up interest rates even further.
Hooray For Rudd & Swan’s cunning plan to simply spend on anything! Sure the nation went from having funds in the bank to now owing billions of dollars, but as a result we have new school halls, thousands of homes now have imported insulation in their ceilings and we will have a new broadband network sometime in the next decade that will rival internet speeds in Fiji. (but unlike Fiji, our access to the internet will be controlled by Conroy’s mystery filter)
Sadly we won’t be getting a high speed rail link like Vietnam, we are not exploring nuclear power as a means to get us off fossil fuels like Indonesia and we import wind turbines from India for our wind power facilities, but what the heck? We have COLA’s! (covered outdoor learning areas)
Yes Australia has taken the simple roof over and an outdoor area and made into an expensive facility that is now required for any well respected school! Our Asian neighbours must be in awe of these engineering wonders!
But I have wandered off subject so let me get back to Australia’s February 2010 trade data. Firstly since our economy is apparently booming you would expect our exports to be going up and be exceeding our imports in dollar terms..right?
But this is not what is happening according to the data supplied by the ABS via website. So let’s look at some of the information provide by the ABS and see what is actually happening. (warning to journalists: these graphs contain numbers and require some understanding of mathematics)
A good place to start is by studying Australia’s export of goods since this includes both hard & soft commodities. (i.e. stuff we dig up, pump out or grow)
Australian Exports – Goods (Feb 2010)
Well our exports appear to be slowly coming back up to early 2008 levels but they are not at what I would call at “boom” levels. I also don’t expect to see Australia’s export of goods get anywhere near the peak of 2008 for some year as our iron ore exports in particular are likely to drop back in terms of volume if the big miners keep prices so ridiculously high.
BHP Billiton, Rio Tinto and Vale might all be enjoying their current price setting power for iron ore and other commodities but the wheel will turn, and if prices stay high or keep going higher, demand will slip.
In fact the big mining companies in my view will present a risk to the global economic recovery if they continue to push for high commodities prices. They are also annoying not only China but the European Union as well, and therefore are making some powerful enemies.
Now let’s look at the other side of the coin and see what Australia’s goods imports are doing.
Australian Imports – Goods (Feb 2010)
Well as the chart shows above goods imports are also recovering, but at a faster rate that exports and this I would suggest is not a good sign at all.
Over the next few years Australia is likely to import even more goods in dollar terms thanks to demand from areas such the mining sector and telecommunications. (i.e especially the NBN)
But some people will say that I am not looking at the boom in Australian services exports, so let’s have a look at those now.
Australian Exports – Services (Feb 2010)
Overall the export of services from Australia have held up well over the last few years, but certainly the growth has slowed since early 2008. The two big drivers of growth in this area have been tourism and education services and as most people would know, our exports in these areas have struggling of late.
So I would not be relying on exports in services to push the Australian economy to dizzying new heights, in fact it is quite possible exports in this area will see little growth in the years ahead and may even start to fall back somewhat.
Australian Imports – Services (Feb 2010)
Imports of services into Australia on the other hand tumbled as a result of the global fall in trade but have since recovered strongly, much more strongly than services exports.
Although services imports and exports only make up around 20% of Australia’s overall trade numbers, it is interesting to note that the only trade area that appears to be booming is imported services.
Many economists dismiss the latest trade data as merely a short term abnormality and say that when higher commodities prices kick in later this year then all will be well. I reckon they are wrong and here’s why.
Firstly, higher commodities prices are likely to hurt demand and so I think many people are not taking into account how higher commodities prices may turn around and hurt the recovery of the global economy.
Secondly, higher commodities prices hurt the Australian economy as well as consumers and businesses end up paying more for a whole range of imported goods and even for our own resources, as utility companies have to pay higher prices for coal and natural gas for example.
But perhaps the negative balance of trade numbers are simply a short term trend as many experts suggest. If so this should be easy to spot when we look at how the trade numbers have been moving over the last few years.
Balance of Trade as % of GDP (Australia vs selected nations)
Now can anyone spot anything on the chart above that suggests Australia’s balance of trade is suddenly going to improve later this year or even get into positive territory any time soon?
Where is the boom? Since when do we classify an economic “golden age” as a being a period where a nation imports more than it exports, while racking up household and public sector debt?
Australia now has the dubious honour of having a wider gap between imports and exports than the United States, and despite all the media bashing the Japanese economy receives, it is still a star performer when it comes to export earnings.
So it looks like it is Kevin Rudd, Wayne Swan, Glenn Stevens, Ken Henry and most of the financial media and economic commentators are against yours truly. They see underlying strength in the Australian economy, and I see underlying weakness. They are counting on a commodities boom to pay down debt and deliver more good times in the years ahead, whereas I see Australia’s reliance on commodities exports as being a problem.
We can’t all be right, but I reckon later this year we should be able to see who is reading the tea leaves better.