Thursday, September 2, 2010

Lopsided growth a real risk

BEWARE of getting what you wish for. The June-quarter GDP figures suggest Australia has entered the mother of all mining booms and, if so, a lot of today's businesses will not be around when it ends.

The 1.2 per cent growth in the June quarter, and 3.3 per cent over the year, sent the dollar back over 90¢ and had economists forecasting rate rises, as the Reserve Bank tries to rein in the rest of the economy to make room for the mining boom.

Wouldn't it make more sense to rein in the mining boom to make room for the rest of the economy? Yes, but we don't do things that way here.

The figures will vindicate the Reserve's confidence that it has read the economy right, and that the danger ahead is inflation. It might wait for more inflation data before moving rates up on Melbourne Cup Day, but the rise could be the first of several.

Growth is good, but what leaps out of these figures is that we have lopsided growth, with many areas hurting.

The big surprise was consumer spending booming in the June quarter, soaring 1.6 per cent, according to the Bureau of Statistics, roughly as much as it grew in 2008-09.

Retail sales are still flat. The bureau said we've been spending on things you don't buy in stores: entertainment and gambling, new cars, financial services, healthcare and transport (plane trips).

These areas make up just a third of consumer spending, yet they generated 84 per cent of spending growth in the quarter. Add in rent, and these six areas made up 90 per cent of spending growth in the year to June. Lopsided growth.

Now take industry. Half the growth in the June quarter was in just three sectors: construction, mining and hiring professional consultants. Lopsided growth.

Look at incomes. You will find corporate profits took an incredible 57 per cent of growth in income over the year to June. Small business took 11 per cent, and wages and salaries just 32 per cent. Workers' share of national income is now the lowest for 45 years. Lopsided growth.

It is not enough for governments to tell us they feel the pain of those doing it hard. They need the courage to change the way our dollars are shared.

A second surprise came from state data. It tells you that in the year to June, quarterly spending grew by $1.16 billion in the ACT but just $953 million in Queensland.

Queensland's population is growing at 2.4 per cent, but spending at 1.6 per cent. These figures suggest that at least until March, its economy was in deep recession.

They help explain why Labor lost nine seats there.

A third surprise. Our savings are shrinking. In 2009-10, national net savings dropped to 5 per cent of GDP, a nine-year low. Even household savings dipped to 1.4 per cent in the June quarter. It's not a good sign for our ability to finance the mining boom ahead.