We Need To Lower Rates To Lift Private Spending

by Aps Growth Admin on April 12, 2012

PROPERTY markets — along with the economy — are still soft, so we’re going to have to be a little patient. On the positive side, it gives us time to get set in an undervalued market. Overall, growth isn’t too bad now, but much of it is in the resources investment-related industries and regions. But growth and investment will broaden beyond resources, slowly. Don’t expect a surge of growth. There’ll be a slow building-up of momentum. Demand softened last year after the 2010 rebound, and confidence turned to water. Everyone was looking at the dark side, and still are. Structural change is painful for many and the politics isn’t helping.

Having grown by 3.3 per cent during 2010, employment stalled last year, recording zero growth. And it hasn’t recovered yet. The housing market displayed a similar pattern. Commercial development picked up a little in 2010 but softened again last year. All this while the public sector is cutting back after the GFC stimulus package. Attempting to achieve a balanced budget will only make things worse. Effectively, it amounts to a negative fiscal shock equivalent to about 2.5 per cent of GDP. That’s huge.

It’s all very well for the government to say it is ‘making room for the minerals boom’, but we need private spending to come through to take the place of reductions in public spending. And, apart from the minerals sector, that’s not happening yet. There will be plenty of time later on to get the budget deficit under control. Meanwhile, we’re still short infrastructure. And there’s a good case for the government to continue its investment in productivity-enhancing projects while there is still some slack in the economy. The continued weakness is largely due to lack of confidence.

FRANK GELBER, ECONOMIST

Date: 5 April 2012 Source: The Australian

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