Carbon tax not to blame for Kurri Kurri closure:PM

The Federal government says its carbon tax was not a major factor in  the closure of  the Kurrri Kurri  aluminium smelter, in the Hunter Valley, which cost more than 450 jobs.

The Opposition Leader Tony Abbott tackled the Prime Minister, Julia Gillard, on the issue as question time opened in Parliament.

Ms Gillard said aluminium prices had dropped fallen by 40 per cent, from their peak.

And a senior minister, Greg Combet,  said “It has long been known that the Kurri Kurri smelter had faced difficulties, which saw the closure of one of its pot lines back in January.

“The key uncertainty facing the company has veen reaching agreement with the NSW government over a long term electricity supply contract,” Mr Combet added.

Mr Abbott responded by quoting a company statement saying: “the long term viability of operations is negatively affected by a number of factors, including increasing energy costs and the carbon tax.”

Mr Combet said: “That was selective quoting by the Leader of the Opposition.”

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Australia ahead of most:OECD

The Australian economy is expected to outperform most others, over the year ahead.

The OECD is forecasting that our growth will be 3.1 per cent in 2012 and 3.7 per cent in 2013.

However another indicator, released later, suggests that growth, over large sectors of  the Australian economy, will be weak for some time.

The Westpac Melbourne Institute leading index, which points to likely growth three to nine months ahead, remained well below trend in March.

The  OECD said it  expects a muted and fragile recovery in many other advanced economies, largely due to the lingering effects of past global turmoil and very challenging economic conditions facing Europe.

And it warns that the European sovereign debt crisis continues to be the most significant risk to the global outlook, with recent political developments in Greece resulting in greater financial market volatility.

However, the OECD expects that emerging economies particularly in our own region will continue to grow strongly.

The OECD expects that China’s economy will grow at 8.2 per cent in 2012, before picking up to 9.3 per cent in 2013. India’s economy is expected to grow at 7.1 per cent in 2012 and 7.7 per cent in 2013.

The OECD also expects that Australia’s unemployment rate will remain substantially lower than the 7.9 per cent unemployment rate expected for the OECD as a whole in 2013, and around half of the 11.1 per cent forecast for the euro area in that year.

The Federal Treasurer, Wayne Swan, said the OECD had also praised applauded the Government’s commitment to return to surplus.

It had said that “restoring fiscal leeway while macroeconomic conditions are still favourable, and the terms of trade high, is welcome.”

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Consumer confidence falls, but….

Last week’s share market slump hit consumer confidence in Australia hard.

The Roy Morgan organisation  said confidence fell 7.5 points last week.

The hit struck all components of the index.

“Australians are less confident about the Australian economy over the longer term, the organisation’s executive chairman, Garry Morgan, said.

Share markets, throughout the world, were rattled last week over fears that unpopular austerity programs might force Greece out of the European Union.

However, US President Obama urged G8 nations at the weekend to opt for expansionary plans instead.

That led to partial share market recoveries, in both the US and Australia, when trading re-opened this week.

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Small business “squeezed”

The small business sector in Australia is still facing “challenging” times, according to a new survey, conducted by Australian Chamber of Commerce and Industry.

The survey showed that  selling prices and profits are still being squeezed, as labour costs rose.

The Survey also confirmed  that:

• the small business sector remains pessimistic about the strength of the Australian economy;
• Profit Growth remains deep in contractionary territory
•  despite poor trading conditions the small business sector continues to report significant labour cost pressures.

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The G8 gamechanger

Investors will start to see small,  but significant, changes in world markets this week.

Austerity is now out of style.

Expansionary policies are on the way back.

The US President,  Barack Obama, saw that the austere policies, championed by the German Chancellor, Angela Merkel, were shrinking European economies.

And his view prevailed, at a G8 meeting in Camp David over the weekend.

The Australian Treasurer, Wayne Swan, is taking a sober view of these events.

He warns that “bouts of volatility” like those seen over recent weeks “are likely to be with us for some time to come.”

Predictably, Mr Swan says this is due to “the profound challenges facing Greece and many other parts of Europe.”

That’s hardly encouraging for Australian investors, who lost billions last week, as share prices plummeted.

Acknowledging that pain, though, should not obscure the fact that a corner has been turned.

The new policies, though, won’t appear overnight.

The US economist, Paul Krugman, last week gave a glimpse of what will be required, to set things right – and keep Greece in the EU – as even Dr Merkel now says is desirable.

It’s a big to-do list.

Krrugman says the European Central Bank must “drop its obsession with price stability.”

That would involve several years” acceptance of 3-4 per cent inflation in most of Europe, and more than that in Germany.

This is called reflation.

It’s a shocking idea.

It won’t be sold, easily.

But the world saw, back in the 1930s, what kind of risks come with allowing unemployment levels of 50 per cent  – and more – to persist among the young.

Mr Swan says Europe’s worries were taken into account, in the budget he produced earlier this month.

“The Budget takes a conservative view of Europe’s economic outlook, with the euro area forecast to contract by ¾ of a per cent in 2012,” he said.

Mr Swan also said, once again, that the Australian economy is still among the strongest in the world .

But he, too, would dearly love to see Europe’s problems on the way to resolution, sooner rather than later.

G8 goes for growth

The German Chancellor Angela Merkel was isolated, at a G8 meeting in Camp David,as President Obama urged other leaders to abandon her austerity program in favour of pro-growth policies.

However, the US President acknowledged that the measures needed might vary from country to country.

Ms Merkel also failed in an attempt she made to persuade the interim Greek government to hold a referendum on whether Greece should stay in the European Union.

She was told, in her telephone call, that this would be beyond the powers of the interim government.

However G8 leaders urged Greece to remain in the EU.

Leaders of the Group of 8 nations, at a meeting hosted by Mr. Obama at Camp David, committed to “take all necessary steps” to strengthen their economies.

They said they wanted to keep Greece in the euro zone and vowed to work to promote growth in Europe, though they did not detail how they would do so.

“Our imperative,” the leaders said in their statement, “is to promote growth and jobs.”

However resistance is expected.

This  is by no means the final word in the growth-versus-austerity fight that has been under way for two years, one observer said.

Even with the future of the European currency union in doubt, Germany has insisted that Europe’s ailing economies tackle their financial problems through spending cuts, a policy that critics say has caused higher unemployment, brought Greece to the edge of bankruptcy and worsened the crises in Spain and Italy.

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Australian wages finally outstrip prices

Wages have been rising much faster than prices over the past year.

That is clearly documented in figures just released by the Australian Bureau of Statistics.

These showed that average weekly earnings rose by 4.4 per cent in the 12 months to the end of February, on seasonally adjusted figures.

That includes a rise of 1.1 per cent between November and February.

Price figures are not directly comparable, because they are taken over different periods.

But that is not too important.

The Bureau’s latest figures show Australian prices rising by 1.6 per cent in the year to the end of March.

So wages rose almost 3 times as fast as prices, over the past year or so.

That looks like a big development.

It is.

Especially for families used to wages chasing prices.

So what, really, is going on?

Who is winning?

Who is losing?

To answer those questions, we need to go back to Economics I.

That tells us prices are set by a mix of supply and demand.

Australia’s experience, over recent decades, has mostly  been one of rapidly growing population.

That, in itself, has produced high demand.

So Australians became used to seeing the price of homes, food, cars – and much else beside – rising constantly.

Since the crash of 2008, though, we have become much more cautious, in our spending.

That is largely due to perceptions of job insecurity, in the rumblings that followed the crash.

Europe’s debt issues have been particularly worrying.

So, mostly, we, are saving more and spending less.

Australia has sunk into a multi-speed economy.

Demand for our iron ore and coal is still high, although even in these areas, prices  have passed recent peaks.

The nation’s shopkeepers – and builders – have had some very tough times.

That has led to widespread price cutting.

Signs offering “20 to 50 per cent off” are everywhere in our stores.

Home building, particularly, has slumped.

Only multi-storey construction projects are showing any signs of life, in most Australian capitals.

Demand for workers, though, has remained relatively strong.

At 4.9 per cent, Australia’s current inflation rate is just a fraction of those seen in many other advanced western countries.

The mining boom has, effectively, put a floor under the nation’s job market, so far.

Widespread perceptions of job insecurity, though, are not entirely misplaced.

The Federal public service, for example, once seen as a lifetime employer, is now planning to cut more than 4,000 jobs.

The Federal government’s determination to get its budget back into surplus hastened that process.

So while most Australians like to see wages outpacing prices, many are not advantaged by the kind of economy, in which that can happen.

Times are still tough, for many.

That must be remembered.

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Confidence still “weak” despite good figures

Consumer confidence in Australia is still weak despite a big rate cut, higher family payments lower unemployment, moderate inflation  and higher wages.

Westpac’s Chief Economist, Bill Evans, described a bare 0.8 per cent rise in the Westpac Melbourne Institute index of consumer confidence as “a disappointing result” in these circumstances.

“It follows a surprise 0.5 per cent cut in the official cash rate by the Reserve Bank and extensive media coverage that the unemployment rate had fallen from 5.2 to 4.9 per cent, Mr Evans said.

However he admitted that “other factors appear to have offset these positives.”

But another survey, published by the Roy Morgan produced a more positive result.

It showed Consumer Confidence had jumped 5.4 points to  its highest level for three months

The organisation said the biggest boost to confidence, reflected in its survey, had come from more people who now expect better times ahead.

Mr Evans noted  that home loan rates had fallen by an average of just 0.37 per cent and there had been “increasingly disturbing” news from Europe.

The Bureau of Statistics reported that home lending dropped by 0.3 per cent in March from the February level.

It also reported that hourly wage rates, measured on the Bureau’s wage price index, rose 0.9 per cent in the March quarter and 3.6 per cent in the 12 months to the end of March.

Prices, measured on the Consumer Price Index, rose by just 0.1 per cent in the same quarter and 1.6 per cent over the year.

The Bureau also reported today that, on original figures, the value of Australia’s imports fell to $18.8 billion in April from $20.8 billion in March.

However, worries over Europe increased overnight, Australian time, when Greek political leaders again failed to reach agreement on a new government for the country.

Fresh elections are now likely in Greece, probably next month.

And Greece might well be forced off the Euro.

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