“Today’s GDP figures showing anaemic growth are further evidence that secular stagnation has hit Australia,” says Professor Richard Holden from the UNSW Business School.
Secular stagnation is a long run lowering of potential growth, generally heralded by a cooling of the economy.
“With an abundance of global savings chasing too few productive investment opportunities economies like Australian and the US will continue to see annual growth with a 2 in front of it if we are lucky,” he forecasts. “It may get a lot worse - it depends what happens in China and the rest of the world. However for Australia to have GDP below two per cent will come as a shock considering the much higher rates we are used to.”
Figures out today indicate that Gross Domestic Product (or GDP) year-on-year growth is now at 2 per cent, compared with 2.3 per cent at the end of the first quarter. GDP grew 0.2 per cent in the three months to the end of June, compared with 0.9 per cent in the first quarter.
He says it is good that the figures are still positive. “That means Australia's economy has now avoided recession for 24 years,” he says. “But right now, the economy is crawling along at a snail’s pace.”
“Increased infrastructure spending, labour market reform and trade liberalisation are more important than ever to redress to these imbalances are raise potential growth,” says Professor Holden. “It was just an illusion during the past decade that growth was high. That was purely due to an asset and commodities bubble.”
The weak GDP numbers have hit the dollar hard, which has slumped to a new six-year low of 69 US cents.
He added “all the budget forecasts were for the economy to grow at between 3.25 and 3.5 per cent, and to do so for years. With GDP figures way below this, any hope of balancing the country’s books have been thrown out of the treasurer’s window, never mind what happens to iron ore prices.”
Professor Richard Holden from the UNSW Business School can comment on the economy, GDP and the dollar.
Julian Lorkin: 02 9385 9887