Strong growth could bring forward next rate rise

Australia’s economy has burst through expectations, recording growth of 1.2 per cent in the June quarter and 3.3 per cent over the year.

A report, by the Bureau of Statistics, shows this was driven by the final stage of the Federal government’s  economics stimulus and a  booming mining sector, which  produced the sharpest growth seen in Australian incomes since March 1973.

The Bureau reported that real gross domestic income grew by a remarkable 4 per cent in the June quarter.

It said this reflects a 12.5 per cent to Australia’s terms of trade, during the quarter.

That, in turn, followed sharp rises in the prices Australia’s miners receive for their products.

The value of Australia’s exports rose by 5.6 per cent during the quarter.

Household spending rose by 1.6 per cent in the same time.

The construction, mining and professional, scientific and technical services sectors all chalked up big production rises in the June quarter.

The Federal government’s school library program,  which was part of the final stage of the Federal government’s economic  stimulus packages, played a major part in the performance of Australia’s construction industries, which recorded a 4.9 per cent rise in output, in  the June quarter.

The mining sector’s production rose by 1.5 per cent in the same time and the professional and other sector saw its output rise by 2.3 per cent.

Economists had been expecting a rise of about 2.8 per cent in Australia’s gross domestic product, in the 12 months to the end of June.

The stronger than expected figures, though, will have an impact throughout the rest of the economy.

They are likely, for example, to bring forward the next rise in Australia’s official interest rates.

The Reserve Bank board will meet next Tuesday, to review those rates.

The next rise had been expected, perhaps, early next year.

It may now come later this year.

Related stories:

1. Stronger than expected growth sparks rate hike speculation
2. Strong employment figures could delay rate cut

Coalition’s confidence grows

Tony Abbott’s confidence is growing.

He now believes that he could well become Australia’s new Prime Minister, very soon.

Mr Abbott, who has been very cautious, in his public statements, since the election, has nos  allowed himself to talk of imminent victory.

“We are no longer an opposition,” he said in Canberra.

“We may very well be a government in waiting.”

Julia Gillard, who is still Prime Minister, in a caretaker role, also allowed herself to show a little emotion, while addressing the National Press Club.

She remained adamant, though, in her assessment of Australia’s needs.

“What is needed now, more than anything, is continuity,” Ms Gillard said.

She admitted, though, that voters had punished Labor.

“I have heard the message from the election,” Ms Gillard said.

The fate of the two leaders, though, still rests in the hands of the four independents, who will hold the balance of power in the new parliament.

Three of them, Tony Windsor, Rob Oakeshott and Bob Katter, have, so far, been acting together in their response to the crisis.

The fourth independent, Andrew Wilkie, has not.

All,  though, have been having a busy set of meetings with senior party people, on both sides.

The count is still very close, with the Coalition having 73 seats, to Labor’s 72.

A minority government remains the most likely outcome of the impasse which  the election produced.

However, Australians may well have to wait until next week, to see what shape the new government might take.

However, if agreement on a new government can’t be achieved, or if a minority government proves to be unstable, Australians may well be forced back to the polls, to choose a new government, very soon.

The mistakes that led to the crisis

Poor risk assessment led to the global financial crisis, according to Guy Debelle, the Reserve Bank’s Assistant Governor.

Arrogance, too,  had contributed.

“In the period prior to the onset of the crisis, hubris developed in parts of the financial sector, and in the investor community more generally,”  Mr Debelle said, in a speech.

He said that had produced a belief, among financial managers,  that everything could be precisely measured and priced.

Those managers had been unable to look beyond the period of “moderation” that had preceded the crisis.

They had expected that good times would continue to roll.

“Risk was misassessed by financial institutions, risk managers, investors and regulators.

“There was a false comfort taken from a misplaced belief that risk was being accurately and appropriately measured,” Mr Debelle said.

“In particular, (they believed) that risk was always quantifiable.”

“That is, not enough judgement was exercised.

” Indeed, it seems to have often been turned off,” Mr Debelle said.

“The argument I have been seeking to make…is that the misasessment of risk has been a key element of the financial crisis,” he added.

“One of the contributing factors to this misasessment was an over-reliance on a model-based approach to risk management, which focussed too much on measurable risk without taking full enough account of unmeasurable uncertainty.”

Related stories:

1. Where the crisis might strike next
2. Debt crisis:Australia escapes the worst, so far