The 0.5% Q2 GDP growth rate completed Australia’s twenty third year without a recession, according to CommSec chief economist Craig James.
But as the economy heads into its 24th year of uninterrupted growth, a fresh alarm bell has been sounded by the former chief economist at Australia’s Bureau of Resources and Energy Economics, Quentin Grafton, who said the Chinese economy is “unravelling”.
The AFR reports this morning that Grafton is worried about the big fall in prices of Australia’s big bulk commodity exports, coal and iron ore, as well as the domestic economy in need of more investment and in economic transition. Grafton is particularly concerned about housing and the high Aussie dollar and believes the RBA is caught “between a rock and a hard place”.
“Put all those things together and it could be a difficult ride for us,” he said. “This isn’t about doom and gloom – it’s about looking at the risks and numbers. There’s a clear and present danger.”
It’s no wonder the RBA is exasperated with the high Aussie dollar which is stubbornly trading above 93 cents this morning. The big moves to quantitative easing by the ECB overnight only reinforce the yield attraction of the Aussie dollar and why it remains stubbornly high.
Questions of the economic transition were certainly raised by the GDP data this week in Adelaide after RBA governor Glenn Stevens reiterated that monetary policy had done all it can.
It’s time for the “animal spirits” Stevens is looking for in the economy to take over if Australia is to finish its 24th year without an increased chance of recession.
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