The 'gloomsters' are just plain wrong on Australia's economy

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“Does it get any better?”

That’s the question CommSec chief economist Craig James asks of all the doom and gloom merchants on Australian growth after the nation’s remarkable run of economic growth without a recession continued.

GDP data for the first quarter of 2016 showed growth of 1.1% taking the year on year growth rate to 3.1%.

That’s the fastest rate of growth in annual terms since 2012 and James said “the economy is not only growing at the fastest rate in 3.5 years, it is growing faster than the “normal” rate – the 10-year or 15-year average”.

“The gloomsters will say the data is wrong, the economy isn’t that strong. Or they will say that the growth is unsustainable or unbalanced or even both. But it is hard to argue with a mountain of evidence”, James said.

He then set out the diversity of growth drivers highlighting the breadth of growth (my emphasis):

Exports, tourist arrivals, home prices, building approvals and car sales are at record highs. Unemployment is at 2½-year lows. Economy-wide sales are at 6-year highs. And not only are they at record highs, but home prices continue to lift, boosting wealth. And those figures are just the ‘top level’ results – there would be a raft of other highlights if you dig beneath the surface.

Which means the economic transition is, contrary to many forecast views, actually happening he says – “what is happening is what is supposed to be happening – mining construction gave us extra production capacity, now that extra capacity is being put to work”.

James is right to ask the question – “does it get any better?”

His answer speaks for itself.

Australia is “an economy that is growing at a fast clip, above the “normal” rate, but with inflation well under control” James said.

The big question now, “the $64 million question” as James puts it, is about the RBA’s next move.

“Arguably with inflation low and likely to remain low, the Reserve Bank could cut rates, run the economy at a faster rate, and generate more jobs. But the risk is that lower rates will just add more fuel to the super-strong housing market. The last thing the Reserve Bank wants is to create an unsustainable boom in housing that could lead to a housing bust and broader economic downturn” he said.

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