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February 09, 2005
beyond economic atmospherics
It is good to see that Kim Beazley has decided to fight the government on the economic battleground when they finally raised, and pushed on, the issue of Australia's poor trade performances and its $50 billion current account deficit. That is a major economic failure, is it not?
The Government's answer was strong economic growth sucking in imports, the drought reducing exports, Asian recession, SARs and a rising exchange problem. The deficit was not really a problem as Australia's all powerful economy could afford the interest repayments with ease.
The Government was ready and the standard lines came rolling out from all and sundry. There was lots of negative rhetoric about high interest rates under the ALP, its $10 billion budget deficit, its $90 billion public debt and throwing a mllion people out of work in the early 1990s. So the ALP has no economic credibility. In contrast, the Coalition will continue to grow the domestic economy through the structural reform in the labour market and workplace.These reforms will increase the efficency and productivity of the mighty economy. But the ALP wil oppose them and so it will block economic growth. The ALP has no economic credibility.
The implication? The Howard government is not responsible for the current account deficit. Anyway it is not even a problem.
However, the issue is on now the public agenda. The ALP have to work hard to rollback the rhetoric and establish its economic credibility. It is going to be a hard slog.
What has been pushed to one side is that the possibility of interest rates rising when the economy is doing exceptionally well. As Ross Gittens points out this is a situation which you would expect to see interest rates rising.
Why? Because that's when demand is most likely to be running ahead of supply, putting upward pressure on prices. And the early signs of gathering inflation pressure are starting to emerge.
He mentions some of the signs, then adds:
With the economy now in a record 14th year of growth since the last recession, it's hardly surprising that signs of constraints in production capacity are starting to show. Shortages of skilled labour are emerging and wages are rising rapidly in the construction industry.
That does not bode well for those with high household debt and big mortgages.
Posted by Gary Sauer-Thompson at February 9, 2005 01:08 PM
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