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185877
Wed, 06/01/2011 - 14:07
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http://m.oananews.org//node/185877
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Economy takes massive hit from disasters
SYDNEY (AAP) - The worst quarterly economic performance in 20 years does not mean the Reserve Bank will tear up its plans to lift the cash rate "at some point" to keep inflation pressures at bay.
But economists say Wednesday's national accounts will make it increasingly difficult for it to justify lifting rates when its board holds its monthly board meeting next Tuesday, even if it is worried about the mining boom putting pressure on inflation down the track.
The economy shrank by a whopping 1.2 per cent in the March quarter due to the devastating impact on exports, particularly coal, from this summer's floods and Cyclone Yasi in Queensland.
The sharp contraction in growth, as measured by gross domestic product (GDP), was the largest since the 1990s recession and even bigger than the downturn seen during the global financial crisis in late 2008.
Annual growth was running at just 1.0 per cent in the year to March.
But Treasurer Wayne Swan said this shouldn't have come as too much of a surprise, and he is confident that the economy will rebound equally smartly in the June quarter.
"We expected to take a very big hit, and we did," Mr Swan told reporters in Canberra.
"Today's national accounts demonstrate the major impact on the economy of extensive flooding and cyclone activity earlier in the year."
This weakness in the quarter was "broadly consistent" with the budget forecasts released last month, which foreshadowed a negative March quarter.
But Mr Swan is confident that this weakness will be followed by a strong rebound in the June quarter as the economic impacts of the disasters ease and reconstruction picks up.
Australia's economic fundamentals remained some of the best in the developed world, and growth should recover strongly as mines return to more normal levels of production capacity, he said.
"There simply isn't another country in the world that could have emerged from these disasters in such a strong position as Australia," he said.
Opposition treasury spokesman Joe Hockey said while the contraction in the economy can be attributed to the natural disasters, the figures demonstrate that the last thing the economy needed was three new taxes.
"While there is underlying strength in the economy, confidence remains uncertain and consumers are nervous about the government's ability to run the economy," Mr Hockey said in a statement.
"Consumers are yet to feel the flood tax ... and plans for a new carbon tax can only further increase household caution."
The government flood levy starts on July 1, while its planned carbon tax and 30 per cent minerals resource rent tax begin a year later.
The total impact from the floods and cyclone reduced GDP by 1.7 percentage points, with exports cutting 2.4 percentage points, and were only partly offset by contributions from household consumption, dwelling and business investment, and government spending.
RBC Markets senior economist Su-Lin Ong said outside of the one-off temporary hit to the economy from the floods, domestic demand proved "rather resilient", while the cost of labour jumped 2.9 per cent.
"The underlying resilience of private demand ... the continued strength in national income, and acceleration in unit labour costs suggest that monetary policy needs to move to a more restrictive stance in the coming months," Ms Ong said.
But economists say Wednesday's national accounts will make it increasingly difficult for it to justify lifting rates when its board holds its monthly board meeting next Tuesday, even if it is worried about the mining boom putting pressure on inflation down the track.
The economy shrank by a whopping 1.2 per cent in the March quarter due to the devastating impact on exports, particularly coal, from this summer's floods and Cyclone Yasi in Queensland.
The sharp contraction in growth, as measured by gross domestic product (GDP), was the largest since the 1990s recession and even bigger than the downturn seen during the global financial crisis in late 2008.
Annual growth was running at just 1.0 per cent in the year to March.
But Treasurer Wayne Swan said this shouldn't have come as too much of a surprise, and he is confident that the economy will rebound equally smartly in the June quarter.
"We expected to take a very big hit, and we did," Mr Swan told reporters in Canberra.
"Today's national accounts demonstrate the major impact on the economy of extensive flooding and cyclone activity earlier in the year."
This weakness in the quarter was "broadly consistent" with the budget forecasts released last month, which foreshadowed a negative March quarter.
But Mr Swan is confident that this weakness will be followed by a strong rebound in the June quarter as the economic impacts of the disasters ease and reconstruction picks up.
Australia's economic fundamentals remained some of the best in the developed world, and growth should recover strongly as mines return to more normal levels of production capacity, he said.
"There simply isn't another country in the world that could have emerged from these disasters in such a strong position as Australia," he said.
Opposition treasury spokesman Joe Hockey said while the contraction in the economy can be attributed to the natural disasters, the figures demonstrate that the last thing the economy needed was three new taxes.
"While there is underlying strength in the economy, confidence remains uncertain and consumers are nervous about the government's ability to run the economy," Mr Hockey said in a statement.
"Consumers are yet to feel the flood tax ... and plans for a new carbon tax can only further increase household caution."
The government flood levy starts on July 1, while its planned carbon tax and 30 per cent minerals resource rent tax begin a year later.
The total impact from the floods and cyclone reduced GDP by 1.7 percentage points, with exports cutting 2.4 percentage points, and were only partly offset by contributions from household consumption, dwelling and business investment, and government spending.
RBC Markets senior economist Su-Lin Ong said outside of the one-off temporary hit to the economy from the floods, domestic demand proved "rather resilient", while the cost of labour jumped 2.9 per cent.
"The underlying resilience of private demand ... the continued strength in national income, and acceleration in unit labour costs suggest that monetary policy needs to move to a more restrictive stance in the coming months," Ms Ong said.
