Rudd’s stars rise as MPs fly back to Canberra

Kevin Rudd’s stars could hardly be brighter than they are now, on the eve of the Spring Session of Federal parliament which opens tomorrow,

His main opponent, Malcolm Turnbull,  has been crrippled by a scandal of his own making.

The Reserve Bank says Australia’s inflationary pressures remain low.

So it won’t be raising its marler interest rate of 3 per cent, anytime soon, despite what you might have read elsewhere, even though it, too, sees signs of the Australian economy recovering.

And to top it all, the International Monetary Fund, which watches government policies throughout the world, has just given the Rudd government a big tick.

As Wayne Swan notes. the IMF has praised the Australian government, in particular, for “its quick implementation of fiscal stimulus.”

The IMF said, too, that, that the Rudd government’s shift into debt had been “justified’ and that government debt, in Australia, is still  lower than that of any other advanced Western Country.

And, if all that was not enough, Wall Street rose strongly again on Friday, New York time, consolidating the gains it has made over recent months.

Luck can change very quickly in politics, though.

Fate. though, still seems to be on the government’s side, right now..

The big vote, in the new session of Parliament, will be the one the Senate is due to take, on the government’s proposed emissions trading scheme.

With Coalition Senators deeply divided on climate change  – and the numbers in the Senate very close  – the outcome simply can’t be predicted at this stage.

If the Senate does block this key government measure, though, Kevin Rudd will be one step closer to having the trigger for an  early double dissolution election.

The Prime Minister should be very careful stepping off curbs, over the weeks ahead.  The fates might well  want to even things up a bit.

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Price pressures “low:” Reserve Bank

The Reserve Bank is not likely to raise its marker interest rate, which now stands at 3 per cent, before the end of the year.

But Australia’s commercial banks are contemplating rate rises, in the not too distant future, arguing that rising costs are making that necessary.

The Reserve Bank revealed, in a statement on monetary policy that it released today, that it still believes emerging inflationary pressures in Australia are moderate.

It also said that the current situation might have made further cuts in its marker rate possible.

But it said it decided, instead,  to keep the official rate on hold, as the Australian economy is gathering strength and the global economy is stabilising.

Even so, the bank managed to sound quite optimistic, on price pressures.

Significantly, it said:-”Recent data on prices continue to suggest that price pressures in the economy are abating gradually.

“Over the year to the June quarter, the CPI increased by 1.5 per cent, the lowest annual increase for a decade, while underlying inflation was around 3¾ per cent.

“This unusually large difference between CPI and underlying inflation reflects significant falls in the price of fuel and the ABS estimate of the price of deposit & loan facilities facing the household sector.

“Importantly, recent quarterly outcomes for underlying inflation have been below the rates recorded for most of the previous year, and a further reduction is expected over the period ahead.

“Upstream price pressures are moderating and there are signs that wage growth is slowing in an environment of weaker demand for labour. Measures of inflation expectations also remain relatively low.”

This is very cheerful talk, for the Reserve Bank, which usually reacts sharply to the slightest sign of resurgent inflation.

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Market surges – but politicians still cautious about recovery

The Dow Jones industrial index rose strongly last month, gaining almost 8.6 per cent in July.

This shows, quite clearly, that many American investors now  believe that the worst of the global economic crisis is behind us.

American – and Australian – political leaders, though, still doubt that.

US President Barack Obama, for one, is dogmatic about that.

“As far as I am concerned,” he said,”we will not have a recovery while we keep losing jobs.”

Australia’s Treasurer, Wayne Swan, is equally blunt.

“Australia still faces tough challenges,” Mr Swan told Channel 9, in an interview yesterday.

So what is going on here?  Surely the investors, too, know something.

And, one said over the weekend, he had never seen markets “just stabilize.”  Clearly he, at least,  expects too see a recovery, in the months ahead.

The economist, Chris Richardson, probably has the best explanation. He says markets move quickly, but economies move slowly.

So how bad has it all been, really?

The Opposition Leader, Malcolm Turnbull, argues that the present crisis hasn’t been as bad, at least for Australia, as the 1990 recession.   And he accuses the Prime Minister, Kevin Rudd, of recklessly putting the next generation of Australians into debt, to alleviate it.

New figures, though, now show that the  US economy shrank by 3.9 per cent, in the first 12 months of its current recession.  That is  its worst slump since the Great Depression.

Although Australia now depends, at least more directly, on the Chinese and Japanese economies, that is still a figure that no Australian government can afford to ignore.  The US, to a large extent, is still the engine of the global economy.  It is still, for example, both China’s and Japan’s biggest customer.

This will be a busy week, for local economy watchers, too.

The Reserve Bank Board, for example, meets tomorrow (Tuesday) to review Australia’s interest rates – and remarks the Bank’s Governor, Glenn Stevens, made last week show, beyond doubt, that he is starting to worry about resurgent inflation.

However a decision either to raise – or indeed cut – interest rates tomorrow would be a big surprise. Most analysts expect the board to simply keep rates on hold, once again.

Board members will see two important economic indicators, before they announce their decision, about 2.30 pm tomorrow.

They are the  figures the Australian Bureau of  Statistics is releasing for movements in  both House Prices and Retail Sales during June.  Both figures are due to be released at 11.30 am tomorrow.

The Bureau is also planning to release its Internati0nal Trade statistics for June on Wednesday.

Most interest, though, will be on the Bureau’s Labor Force figures for July.  They are due out on Thursday this week.

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Reserve bank chief sees brighter times, but no more rate cuts

The Reserve Bank Governor Glenn Stevens says its becoming “much easier” to imagine “upside risks” in Australia’s economic outlook.

As the bank is traditionally committed to keeping inflation firmly under control, this comment is being seen as an indication that further interest rate cuts, on the bank’s part, are unlikely.

But Mr Stevens, who was addressing business leaders at a lunch in Sydney yesterday, also said that Australia may now have an opporltunity to increase its housing stock, without increasing house prices.

He said it would be very disappointing if it did not do so.

However Mr Stevens said Australians should not look for “easy prosperity.”

That would  be a mistake.

He added, though, that confidence seemed to have regained ground in Australia.

“We cannot claim that Australia has avoided any downturn at all,” Mr Stevens said.

“It appears at this stage, however, that the downturn we are having may not turn out to be one of the more serious ones in the Post War era.”

Mr Stevens that contrasts with the experience of many other countries.

“It is becoming much more common for Australians to see the glass as half full than as half empty,” Mr Stevens said.

Mr Stevens predicted that the economic emergence of China and India would continue in the years ahead.

But he said that would present challenges as well as opportunities.

see the full speech at www.rba.gov.au

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Recovery:Rudd spells it out

The”success” of the Rudd government’s stimulus package will be “a lesson” for others, including the US, which have taken a different path, Westpac’s chief economist, Bill Evans, says.

The Nobel Prize winning economist, Paul Krugman, agrees.  He has repeatedly described President Obama’s stimulatory package as inadequate.

Comparisons may be odious.  But they are unavoidable.  The figures speak for themselves.  Unemployment has now hit 9.5 per cent in the United States.  But it still stands at just 5.7 per cent in Australia.

Mr Evans spoke as he released the latest Westpac Melbourne Institute of Consumer Sentiment.   Surprisingly, for times like these, it showed that consumer sentiment surged by a record 23.3 per cent, over June and July.

Even its authors, though, warn that this burst of exuberance might not last.

They say that the first flush of the Federal government’s stimulatory packages has now passed.  And unemployment is likely to rise later this year.

So the Australian economy could still contract.

Meanwhile, though, exuberance rules.

Mr Rudd is not reluctant, though, to teach others the lessons that the global economic crisis has taught him.

He says the G20 must be given the job of coordinating measures to end the crisis.

He fears that the world’s richest and most powerful nations, represented by the G8, cannot do it alone.

Mr Rudd presented that case very forcefully in Berlin.

He drew close comparisons between the threats the world faces now – and those it faced back in the 1930s – at the time of the Great Depression.

His pitch was chilling.

Mr Rudd noted that global stock markets fell by just over 20 per cent in the first 12 months of the Great Depression.

That event is commonly called the Great Crash of 1929.

Yet, as Mr Rudd also noted, global stock markets plunged by more than 40 per cent, in the 12 months from April 2008.

“But there is one difference between now and 1929,” Rudd added in a speech he delivered in Berlin.

“Decisive action by the world’s major economies, coordinated by the G20, has prevented this crisis resulting in the prolonged and  deep decline in economic activity that the world experienced in the 1930s.”

“Uncoordinated national responses are no longer adequate,” he added.

Mr Rudd warned, several times, that neither Australia nor the world is out of the woods yet.

The full text of the PM’s speech is on his website at www.pm.gov.au

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A day of doubt on financial markets

Australia’s share markets will open today without a current lead from Wall Street.

That’s because July 4 – Independence Day – was a national holiday in the United States.

Europe’s Stoxx index won’t be much help, either.  It rose by just 1.31 points.

The Federal government remains upbeat, though, about its stimulatory plans.

In an assessment released yesterday, the Employment Participation Minister, Mark Arbib, said 4,000 jobs would be created in just one part of those plans, the Energy Efficient Homes Package, which was launched last week.

“The Insulation Council of Australia and New Zealand has estimated sthat 4,000 jobs will be created directly from this part of the Stimulus,” Senator Arbib said.

He said it would also cut energy bills and carbon emissions.

Under the plan, families will be able to have ceiling insulation installed, with the Federal government picking up the bills.

The Treasurer, Wayne Swan, also the start of the new financial year had also marked the start of  new tax relief measures.

He said these measures include a significant increase in the low income tax offset.

“The new financial year also brought with it indexation increases in the child care benefit, the child care rebate and the baby bonus,” Mr Swan said.

The Reserve Bank board is expected to keep Australia’s interest rates on hold when it meets tomorrow, although a small cut is possible.

There will also be new housing finance and consumer sentiment figures this week.

However Australians will have to wait till Thursday next week, to see the Statistician’s unemployment figures for June.

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New worries appear in the Australian economy

Although retail sales rose in May, the global economic crisis is now making its presence felt in Australia.

Other data, released yesterday, showed building approvals plunging 12.5 per cent in May and manufacturing activity continuing to weaken.

The Roy Morgan organisation, though, produced the most disturbing figures.  These showed Australia’s unemployment rising  by 37,000 in June, to 862,000.

It said, also, that another 967,00 Australians are currently underemployed.

The Treasurer, Wayne Swan, though, described the retail sales figures as “very encouraging.”

“Retail sales in May are up 1 per cent,” Mr Swan told reporters in the Brisbane suburb of Nundah.

“They’re  up something like 5.9 per cent since last November.”

However  big questions remain.

How much of this is due to government stimulation measures and how long can all that last?

The latest round of tax cuts, which went into effect yesterday, might not be all that much help, in the government’s pursuit of economic recovery.

A radio interviewer, Mike Carlton, asked why rich people, like himself and Mr Swan, would be getting cuts of $41 a week, while ordinary wage earners would have to make do with just $2.88 a week.

That’s an important question.  As economists say, the rich have a lower propensity to spend than the rest of us.

So they are likely to save  big slices of their tax cuts, taking that money out of the economy, at least for the time being.

As always, Mr Swan had a ready answer.

He said the new financial year’s tax cuts must be assessed along  with others granted last year.

The two, combined, added up to very substantial tax cuts for Australians on lower incomes, Mr Swan said.

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Swan cautious as economy faces new tests

Australians will know much more about the state of the nation’s economy by the end of this week.

The Statistician is planning a string of important releases this week, starting with July’s economic indicators and new figures on the nation’s social trends tomorrrow.

The really big numbers, though, will be released on Wednesday and Thursday.

The nation’s retail trade figures for May, which are to be released on Wednesday, will show whether Australians kept spending as the first round of the Federal government’s stimulatory measures passed.

The bureau is also planning to release new building approval figures for May and engineering construction figures for March on Wednesday.

Fresh international trade figures, also for May, are also to be released on Thursday.

On Friday, Australians will  also get a much clearer picture of the nation’s job market, with the release of current labour market figures, which will draw together a range of  labour market statistics.

So far, at least, Australia has held up remarkably well  against the ravages of the global economic crisis.

However the Federal Treasurer, Wayne Swan, is warning Australians against excessive optimism, saying the nation still has “a rocky road ahead.”

He said the commodities boom is now unwinding and he warned that would have a “devastating” impact on Australia’s trade.

Mr Swan said the value of Australia’s commodity exports is expected to fall by 18.1 per cent in the new financial year.

He said that would strip $35 billion from the nation’s export earnings over the coming 12 months.

“This will be drive by a sharp decline in  minerals and energy export earnings, which are expected to fall by 22.4 per cent,” Mr Swan said.

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