Both the global and Australian economic outlooks are more fragile than 12 months ago. World GDP growth has fallen from 3.6% to 2.9% based on OECD projections. Australia has fared even worse, falling from 2.7% to 1.7%.
The Australian Government continues rhetoric of maintaining GDP growth but this is propped up by population growth, to the extent that if GDP is measured on a per person basis, it is actually in decline. However, just when it appears that most economic indicators are negative, the federal government budget update shows that it has reined in the deficit, to now being in a position of virtual balance.
Escalating trade policy tensions, Brexit, geopolitical risks and the bombing of Saudi Arabian oil supply infrastructure are all eating away at confidence and investor sentiment. Global trade growth has fallen from around 6% in 2016/17 to around 1% in 2018/19.
World investment growth has slowed in a similar manner. The OECD expects the slower growth to persist, such that world GDP will fall by a further 0.6% by 2021/22.
12 months ago the RBA reported that GDP growth in 2017/18 was 2.75% and their projection for 2019/20 was for this to increase to 3.25%. Now that we can look back at these projections it is easy to see how wrong they were.
The aforementioned turmoil in the world economy has had a big impact on Australia, reducing GDP growth to 1.7% over the past 12 months.
It is interesting to note that amongst this lower growth, the Australian economy has some elements of strength as follows:
- Trade surplus on the back of strong commodity prices.
- Increased tax receipts fed by both mining profits and employment growth.
- The above factors has allowed the Government to improve its Budget position from significant deficit to now being virtually in balance.
Population growth and a higher employment participation rate means that the unemployment rate remains above 5%. This means no real pressure on wages and thus minimal wages growth.
The Government has recognised this issue and sought to stimulate consumer spending through tax cuts. These together with falling interest rates should technically encourage consumers to spend more.
In the short term it appears that lack of confidence has seen households choose not to spend the additional disposable income – the Government hopes that consumers will loosen the purse strings in the near future.
Small Business Conditions in Australia
(For access to this article in full please subscribe to the Business Values Newsletter which can be done so via this page)