Current

    Phil Ruthven considers the fortunes of Australia and its industries over the next twelve months as the global economy continues to move at a subdued pace.


    Despite subdued world economic growth, 2016 looks like it might actually be a bit better for Australia than 2015. The recent free-trade agreement (FTA) with China and the Transpacific Partnership agreement will help. So too will a low Australian dollar, continuing low interest rates, and hopefully continued rises in consumer and business confidence – always heroic wishes or assumptions.

    Then again, there is a stoush brewing on overdue taxation reform, fuelled by ignorance, vested interests, politics and a severe knowledge-deficiency in finance, taxation and economics in our unrepresentative Senate. That takes some diplomacy and compromise to navigate through. And, of course, it is an election year – expected late in the second half of 2016.

    These days, in forecasting the economy in a new calendar year, we have to start with the marketplace. Gone are the days of a production-push economy that we had in the industrial age (up to the mid-1960s) or the agrarian age (before the 1860s). We now have a market-pull economy in the infotronics age of services, underpinned by the utility of information and communications technology (ICT), compared with the goods-based economy in the now-gone industrial age, which was underpinned by the utility of electricity and telecommunications.

    This market and consumer power has been further strengthened by social media, fast broadband, big data and analytics that have emerged in the second stage of ICT in 2007: the digital disruption era. The main aggregates of the market that we might expect for 2016 are shown in the figure.

    Our gross national turnover (GNT) – comprised of our own gross national expenditure (GNE) on goods and services, plus exports (overseas expenditure), should exceed $2 trillion for the first time. Our GDP should nudge $1.7 trillion with real growth of some 2.5 per cent compared with an estimated 2.3 per cent in calendar year 2015. This growth is well below our long-term average of 3.5 per cent, below the expected world GDP growth of 2.7 per cent, and it is only just over a third of the growth in our region of the Asia-Pacific, but better than the OECD average, dragged down by the European Union.

    Inflation, measured by the GDP deflator, having been negative in fiscal 2015 and probably close to zero in calendar year 2015, may be around 1 per cent or a little higher in 2016.

    Market segments

    So what is happening to our market segments: which of them are growing, stumbling or declining? Consumption expenditure is expected to be some 62 per cent of the total market, and growing at a hoped-for 3.5 per cent, with household spending rising faster than 2015 due to rising consumer confidence; a very popular new Prime Minister; and less appetite for investment housing (a capital item).

    Exports, accounting for some 17 per cent of the market, could grow as fast as 9 per cent on the back of a cheap Australian dollar, fast-rising inbound tourism, growth in mining export volumes again – as distinct from prices – and some manufactured foodstuffs. And, of course, helped by the new China FTA and Transpacific Partnership. Agriculture, if El Nino is cranky, could cut into its exports, but since agricultural products are less than 10 per cent of total exports these days, this would do less damage than in decades past.

    The third sector is investment and capital expenditure, which accounts for 21 per cent of the marketplace. While the impact of the crash in prices has affected mining investment – a quarter of all capital expenditure in 2014 – the negative growth in the 2015 fiscal year for all capital expenditure was limited to -3 per cent, and probably not much more negative in the 2015 calendar year. We just might see the negative performance in 2016 limited to -2 per cent if the boom in housing construction and new infrastructure continue through the year. Business capital expenditure is the bulk (near 60 per cent) of all capital expenditure, and, while still likely to be negative in 2016, there are signs of confidence emerging in that sector, helped by the new Prime Minister’s cajoling.

    Indeed, the current plus for the economy is Malcolm Turnbull, like New Zealand’s John Key, who is commercially and politically savvy, a reformist, upbeat and, so far, popular and steadying.

    What about a recession?

    Any talk of recession is premature. If we were to be vulnerable to one, it would be in 2017–18, at the end of the normal eight-and-a-half year long business cycle. Certainly the world economy is vulnerable at that point, having not reduced national debts since the global financial crisis, still running government deficits and facing some rise in interest rates to appease lenders. But if Australia can stave off the cause of recessions in Australia – a fall of 10 per cent in capital expenditure – we could yet again avoid a recession and move on to an unprecedented three-plus decades of uninterrupted growth.

    As important as the market-pull is to the economy, the production push is vital when it comes to innovation, productivity and competitiveness. This leads us to the outlook for industries.

    In 2016, the best growth is likely to come from health, hospitality, mining and telecommunications. The slowest growth is likely with manufacturing, utilities, transport, and administration and support services. All other industries are expected to grow at a rate around GDP, plus or minus a bit.

    In the case of productivity, the best growth could be expected to be mining (a condition of survival), utilities, finance and construction. The laggards, needing innovation and panel-beating, are likely to be professional and technical services, arts and recreation, health, administration and support services and transport and postal services.

    In conclusion, 2016 is likely to be another slow-growth year; just a bit better than last. But it is an important year to start addressing the long malaise in our economy of nearly 10 years as a result of poor leadership, lack of reforms in industrial relations and taxation, insufficient innovation and patchy productivity. Nearly everybody knows this; it is a case of getting on with it.

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