Australia, Here Comes Your Economic Transition

It’s easy to be negative on the Australian economy at the moment.

Last week’s big spike in the unemployment rate to a 12 year high of 6.4%, a high Aussie dollar, the end to the mining investment boom and the inevitability that 23 years of uninterrupted economic growth will come to an end seem to have ignited a new round of hand wringing.

Both the Financial Times and our Business Insider US colleague Mamta Badkar have this week written missives suggesting that things aren’t looking good in Australia.

But an economy in transition is not necessarily a weak economy and as the NAB Business survey and the Westpac Consumer Sentiment survey both showed this week negative talk might be a little premature.

Sure, after solid growth by global standards for the GFC and post-GFC period, the fact that Australian unemployment is above US unemployment gives us pause. But equally the official estimate that the number of employed Australians in July was 11,576,619 is important as it is just 300 people fewer than the all-time record set in June 2014.

So employment is doing okay. It could just be doing better.

Likewise the RBA is keeping rates low and leaning toward lowering them again because it is trying to get domestic consumption back online after subduing it to make way for the mining boom.

Together with the improvement in the US economic outlook this strategy is working according to Felicity Emmett, ANZ senior economist. In a paper written with ANZ economist Dylan Eades, Emmett released a paper this morning that said the non-mining business investment outlook is looking brighter.

Emmett told Business Insider that “both long term and short term fundamentals point to strengthening non-mining business investment: capital stock is low, corporates have deleveraged and have tidy cash balances while rates remain very low. More importantly, confidence – the key ingredient – looks to be returning to the business outlook”.

So when you see that the Australian and US investment cycles are highly correlated, the outlook for investment spending and in tune employment and consumption domestically, is looking brighter.

That’s great news for Australia – an economy in transition.

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