“Green shoots” is the buzzword of economic commentary over the last few months. They are meant to re-assure us that the global crisis will not be as bad as first feared. There is now talk that the recession is already over.
Reserve Bank governor, Glenn Stevens, went so far as to say, “By the standards of past recessions, however, this was a mild downturn. Although the evidence is as yet incomplete, this episode has been much less serious than those in the mid 1970s, the early 1990s.” But behind the soothing words is a very different picture.
The Australian economy has fared better than many other developed economies, although this shouldn’t be exaggerated.
The Financial Sector Union estimates that 10,000 jobs have been lost from the finance sector since last October—yet the banks are recording multi-billion dollar profits.
The Bureau of Statistics (ABS) data showed August’s unemployment figures remained stable at 5.8 per cent, but this was only because the participation rate dropped.
More than 30,000 full time jobs were lost, with only 3800 part time positions being created. Even more revealing is that the number of hours worked has fallen for 13 consecutive months along with the loss of 221,600 jobs.
The real unemployment figures are certainly higher. The ABS records people as employed if they work only an hour a week. According to the Bureau, in July, Australia lost 900 jobs. Yet figures from Centrelink show that an extra 22,000 people registered for the dole.
Similarly when there was a surprise 5.6 per cent jump in investment in equipment, plant and machinery in the three months to June, it was claimed to be evidence that the economy “was turning the corner”. However, Treasury estimates reveal that all that growth in investment was the product of businesses taking advantage of a government investment allowance.
Expenditure on equipment, plant and machinery is actually down by 7.1 per cent for the 12 months to June 2009.
Even some bosses are unconvinced that the “green shoots” are real. Peter Brada, executive director of Australian Construction Industry Forum says, “Private sector spending has collapsed in non-residential construction and government spending and stimulus packages…are not able to offset this collapse.”
In Australia, mining and heavy industry construction is set to decline by one third over 2009-10 and 2010-11. The Forum expects 75,000 to 80,000 construction workers’ jobs will be lost before any recovery kicks in.
According to the chief executive of Magellan Financial Group, Hamish Douglass, “You are seeing some pick-up in production statistics around the world … [but these] are merely a restocking of inventory pipelines and not a sign that the world is on the verge of a sharp economic recovery.”
James Holt, vice-president in Australia of BlackRock Investment Management, says, “Government stimulus packages and cash handouts are now supporting most national economies and have helped boost economic indicators — the oft-mentioned ‘green shoots’.”
Access Economics describes the economy as “floating on a sea of government stimulus” and that the recovery may not be as “flash as we initially thought”.
Much hope has been placed in China as an engine of economic growth (see p12) but big questions marks hang over the Chinese economy.
China’s growth rate will continue to be hampered by the weak world economy. And that is not going to change soon. Despite the talk about “green shoots” in the US economy, US Treasury Secretary Timothy Geithner says, “We still have a long way to go before true economic recovery takes hold.” China’s export growth is now shrinking at 20 per cent a year.
China’s 8 per cent growth is based on massive domestic stimulus that has created its own problems. “So you see asset bubbles in commodities, stocks and real estate,” said Zhu Min, vice president of the Bank of China.
JP Morgan expects that China will keep growing for the rest of the year, but not through 2010. “In the first half of the year a large percentage of that was also re-stocking. Now China is basically up to its neck in physical materials and the end user demand is catching up but not quickly enough.”
This in turn creates problems for the Australian economy. While export volumes of metallurgical and thermal coal are set to rise by 4 per cent and 3 per cent respectively, the value of these exports are expected to drop by 50 per cent and 38 per cent.
The global financial crisis is a long way from over, and governments and bosses are determined to make workers pay for it. The possibility of rising interest rates will only add to the pain, reducing already declining household incomes.
Meanwhile up to 120 jobs are set to go from the Tasmanian car parts maker, ACL, while the Rudd Labor government prepares to impose “hardline Budget cuts” on those that can least afford it.
By Ian Rintoul