SMH April 19, 2011: IF THIS is economic success, why does it have to hurt so badly? Australians are constantly told they are living in a miracle economy. After escaping the global financial crisis relatively unscathed, the economy is experiencing the biggest mining boom since the gold rush days. The jobless rate has a “4” in front. But scratch the surface and it is clear not everyone is winning.
Residential land sales are at a decade low, retailers warn of subdued sales and banks are preparing to tighten lending criteria to reflect the higher cost of living families face.
Economists have warned for some time of a multi-speed or two-speed economy. The Prime Minister, Julia Gillard, prefers to call it a “patchwork” economy. Call it what you will, it is happening.
The tectonic plates of the economy are shifting to reflect the biggest external income shock in Australia’s history coming from the boom in global commodity prices.
Sky-high commodity prices are fuelling massive investment in resource projects, creating jobs, generating income, boosting share prices and retirement nest eggs.
But the Reserve Bank has only one lever with which to control this potentially inflationary impulse. It already has interest rates at slightly above their historic average, acting as a drag on growth, and is on the lookout for signs of inflationary pressure that would prompt it to tighten rates again. Meanwhile, the mining boom has pushed the dollar to a post-float high.
This is making life uncomfortable for the non-resource exporting parts of the economy, such as manufacturing, tourism and education. They are shrinking as a share of the national economy.
Other industries are also subdued. Home construction is suffering from higher interest rates, low affordability, high developer fees and charges and bigger costs due to labour shortages.
Only 12,000 blocks of new land were sold in the last three months of last year, compared with 20,000 in the last three months of the previous year.
Households have responded to higher interest rates and the uncertainty created by the financial crisis by closing their wallets, creating the toughest retail conditions in decades.
Households are feeling the pinch from unrelated price pressures, such as rises in power bills due to the cost to electricity companies of network upgrades and compliance with renewable energy targets.
Tensions in the Middle East have pushed petrol prices to 30-month highs, meaning the average household is sinking $202 a month at the bowser, a rise of $36 since September, according to CommSec research. The chief executive of Woolworths, Michael Luscombe, attributes subdued sales to rising costs. There was no doubt the cost of energy, schooling and petrol had gone up but prices of goods such as computers, electronics and clothes had fallen dramatically.
Indeed, Treasury analysis shows growth in consumer prices of 2.6 per cent last year was outstripped by growth in average incomes of 4.5 per cent. Welcome to life in the multi-speed economy where we’ll get richer, on average, but many of us won’t feel it.