Australia has suffered a period of gloomy reflection with indicators of household and business confidence falling sharply.
Economists have been widely quoted as effectively saying "the end is nigh". The end of the decade-and-a-half-long boom, that is. CommSec equities economist Savanth Sebastian said recently: "Rumours of the death of the Australian economy are overdone". (We are grateful to David Uren for this quote.)
Uren himself said: "Business has stunned financial markets by reporting a surge of investment in the June quarter and canvassing plans that would lift spending by more than a third in 2008-09 in signs the Australian economy is defying international turbulence.
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"The planned increase in spending is the biggest jump in 26 years, and flies in the face of slumping business and consumer confidence."
Australia has a most resilient economy. Its generic tendency is to run too fast, not too slow. No Eurosclerosis here, comrades. The boom defied the Reserve Bank's rather feeble attempts to rein it in while Ian Macfarlane was in charge of monetary policy.
We all thought that current governor Glenn Stevens, known affectionately in privileged circles as "the Enforcer", would bring the economy to heel. "Had done" was the general judgment.
Subsequent to the capital spending surprise, the RBA reported slower growth of credit, but rather faster growth of "money".
Total credit provided to the private sector by financial intermediaries rose by 0.5 per cent over July 2008, following a rise of 0.4 per cent over June. Over the year to July, total credit rose by 11.2 per cent. Credit for housing has slowed to a bit below 10 per cent.
The Sunday Age's front page screamed "House sales tumble as slump bites". It quoted new figures that show a 44 per cent drop in house sales over the year and noted that Victoria's auction clearance rate had fallen below 60 per cent for the first time this year.
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Similar figures for other cities are 51 per cent for Sydney, 43 per cent for Brisbane, 33 per cent for Adelaide and 50 per cent for Canberra. Melbourne's reaction reminds Henry of the angst in 1991 when even the trams were touting for business, allowing Henry to declare: "the policy is working".
There will presumably be quiet satisfaction as the board of the Reserve Bank meets today. The policy of restraint is working. To be sure, tightening was too gentle and too slow, but now the long-awaited easing can begin.
The unexpectedly strong business investment intentions data should mean the easing is modest and far from rushed.
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