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WHERE is the Australian economy heading these days?
Last December, only two economists surveyed by the Melbourne Age newspaper predicted a decline in Australia's gross domestic product by June 30. But as the year progressed, the consensus changed as most became convinced that the economy would shrink.
The experts were therefore surprised in May when the Bureau of Statistics announced that the domestic economy grew by 0.3 per cent in the first quarter.
More positive news soon followed. Early last month, it was announced that tax breaks had helped push sales of cars, buses, trucks and utility vehicles towards an all-time high. Add to this record retail sales, a recovery in property prices and a surge in the stock market, and it is not surprising that any semblance of a consensus among the experts has since evaporated.
Surveyed again last month, around a third of the economists consulted by The Age still expected the economy to shrink this year, at somewhere between minus 0.4 per cent and minus 3 per cent. But the rest predicted that the economy would either grow or stagnate.
A recent report released by the International Monetary Fund (IMF) seemed to side with the pessimists, suggesting the Australian economy would contract by about 0.5 per cent for this year. But even this prediction was significantly better than the 1.4 per cent decline the bank had forecast as recently as April. The latter IMF forecast is consistent with that issued by government economists in Canberra.
So what is going on? Late last year, Australia seemed largely insulated from the global crisis. Profitable but lacking a rapidly growing surplus of deposits, the nation's banks had neither the means nor the inclination to invest heavily in the sub-prime debt instruments or similarly dubious foreign assets that crippled many financial institutions in other economically advanced countries.
Trade figures were also buoyed by continued strong demand for the country's farm and mining-based exports. These, together with lower interest rates and a massive fiscal stimulus, have so far kept the economy from experiencing a technical recession.
Can the economy continue to defy global trends? The government is certainly doing its best to make it so. Treasurer Wayne Swan announced in May that he intended to spend A$22 billion (S$25 billion) on roads, railways, schools, hospitals and ports. This was in addition to more than A$12 billion in cash handed out to consumers in February.
Those who take an optimistic view of the future point to the better-than-expected first-quarter results, a rise in consumer spending and a recent recovery in the housing sector.
Many, such as Mr Richard Gibbs, chief economist for the Macquarie Group, are also likely to be bullish on China - an important market for Australian raw materials - and subscribe to the view that the world may soon experience a V-shaped economic recovery.
More recent numbers, however, tend to support the pessimists. These include a larger-than-expected trade deficit in May, a drop in retail sales and reports of lower building approvals. The global recession, it is argued, is beginning to bite as stimulus efforts fail.
The alternative explanation is that these numbers are mere blips, and that while exports fell in May, much of the 13 per cent decline in exports to Japan can be explained by the large reductions in coal prices Australian miners negotiated with Japanese buyers.
Exports to China, on the other hand, grew by 9 per cent. Meanwhile, new tax relief measures targeting low- and middle-income earners are expected to stimulate consumer spending.
Where there is a consensus, it tends to be about trends. But the range is wide. Take projections on the size of the fiscal deficit for the next federal budget. Predictions currently range from A$18 billion to A$62 billion. And while just about everyone expects unemployment (currently at 5.7 per cent of the workforce) to rise this financial year, estimates range from 8 to 12 per cent.
The only real area of agreement seems to be about inflation, generally seen as remaining within the Reserve Bank of Australia's target of 2 to 3 per cent.
This, in turn, has prompted many to suggest that the central bank will lower interest rates before the end of the year. But there is no consensus about what will happen after that. Sometimes economics can be of so little use.
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