Economic nirvana: Long may it reign over us
The data and events of recent weeks present a picture of the Australian economy in a structurally brilliant position with a near text-book perfect implementation of macroeconomic policy.
Think about it:
- GDP growth picking up to 4.3% and is now set to be locked in around 3.25% to 3.5% to be back around trend.
- Inflation at 2% to be at the bottom of the RBA target band and looking a million miles from getting near 3% which is the top end of the band.
- Solid job creation with 85,000 new jobs created in the last 3 months: the unemployment rate is hovering around 5 to 5.25% which is low on any reasonable measure.
- The three major ratings agencies have affirmed Australia’s triple-A credit rating.
- The yield of government bonds has been tracking at record lows and as a massive vote of confidence in Australia’s economy and policy settings, around 80% of the government bonds on issue are held by foreigners.
- In terms of policy, the budget locked in an unambiguously restrictive tightening in fiscal policy with a return to surplus and historically low levels of spending and tax to GDP ratios.
- This fiscal prudence, among other matters, has allowed the RBA to move monetary policy to an easy setting which helps the softer parts of the patchwork economy and takes some of the heat out of the strong Australian dollar.
All that is good, but here are a few lesser known facts about Australia:
- Despite being the 52nd largest country in the world in terms of population, Australia is the 13th largest in terms of US$ GDP.
- Using per capita GDP in US$ terms, the average Australian is 30% better off than those in Canada, 35% higher than the US, 50% higher than in Germany and 70% higher than in the UK.
- Australia has had a decade where growth in household incomes has outpaced the rise in the consumer price index. This rise in real wages is not being matched in many other industrialised economies.
- The current 5.1% unemployment rate is very good, but the last time Australia’s unemployment rate was above 6% was in July 2003.
- Australia has gone 21 years without a recession.
Pretty good ay? If we revisit this list of economic achievements in 3 or even 5 years and the broad thrust of them are still in place, it would be fantastic.
This is why economic policy matters so much.