Unlike America, Australia is in no need of ‘quantitative easing’, despite what we might hear from some of the excitable ones in the economic commentary classes and in what passes for Federal Parliament.
That the Australian economy is slowing is not in dispute, but it isn’t moribund.
There were more signs of the slowdown yesterday with another 4% fall in the value of imports in February, and car sales for the month down sharply on January and over the 12 months to February.
At the same time, a senior executive of the Reserve Bank has repeated the warning that Australia will not escape a weakening in economic activity this year.
RBA assistant governor of economics Malcolm Edey says Australia is being affected by the "very severe" crisis and sharp downturn in global demand and activity.
"In this environment, it’s not going to be possible for Australia to avoid some further weakness in 2009," Dr Edey told a Foundation for Aged Care business breakfast in Sydney this morning.
It was the first of six major speeches by senior RBA officials over the next fortnight, including one from Governor, Glenn Stevens.
Dr Edey said the indications were that world economic conditions had remained weak in early 2009, but he said (as Mr Stevens has said repeatedly) that Australia was in a better position than most to weather the storm.
He spoke a couple of hours after the US Federal Reserve had stunned global markets by a dramatic move to what’s called quantitative easing, whereby the central bank buys government debt: in this case $US300 billion of US Treasury bonds over the next six months.
The move saw the sharpest fall in US government interest rates since the early 1960s, while oil, gold, copper and the Aussie dollar rose and the greenback fell sharply.
Driving the Fed’s decision seems to have been a glum assessment that the health of the US economy had worsened since the Fed last met in late January.
Dr Edey is the chief economist at the RBA, so he is as best placed as any one to work out where we are going.
And that is Australia is nowhere near the RBA being forced to follow the Fed: our economy might be weakening, but it’s not stalled in a fall.
Macquarie Bank interest rate strategist, Rory Robertson said the Fed’s latest "unconventional" measures are designed to drive down key lending rates in the US economy – the rates on mortgages, car loans, student loans, municipal loans, business loans, etc.
"With the Feds rate pegged at zero for the foreseeable future, the Fed continues to do what it can to stabilise both US aggregate demand and the fragile US financial system."
The Australian economy isn’t fragile or febrile like the US, UK or Japan; demand is still in the economy, though weak, and we can still export. Inflation remains high here in comparison to the US and Europe (but will ease a touch over the year).
But the economy is slowing.
Housing starts for the December quarter collapsed 9.9%, the lowest since September 2000 – when the GST was introduced – with the size of the contraction surprising some analysts. Why the surprise when the monthly figures were showing a big fall!
The fall in private dwelling approvals seems to have slowed as the first home buyers’ grants kick in, but non private dwelling approvals are weak because developers can’t get money to finance their projects from property shy banks like the Commonwealth, Westpac and Suncorp.
The important preliminary import figures for February show that a huge 79% rise in the import of non-monetary gold (the size of the rise was $782 million in the month) boosted imports.
Otherwise the fall of only $18 million (on a balance of payments basis) would have been much larger.
On the raw, original figures the Australian Bureau of Statistics said "The February 2009 merchandise imports were $16,577m, a decrease of $609m (4%) on the revised January 2009 merchandise imports of $17,186m".
The ABS said "Preliminary analysis shows that goods imports (debits) on a balance of payments basis decreased by $18m in seasonally adjusted terms between January 2009 and February 2009.
“Consumption goods fell $691m (13%) with non-industrial transport equipment down $227m (22%) and consumption goods n.e.s. down $143m (8%). Intermediate and other merchandise goods fell $264m (4%).
“Other goods rose $619m (43%) with non-monetary gold up $782m (79%). Capital goods rose $318m (7%)".
Since last November, imports on this basis have fallen 20% or around $4.2 billion as the slide in oil prices (which levelled off in February) and drop in machinery and equipment and consumption goods followed falling demand and the cancellation or postponement of mining and construction projects across the country.
Car imports are falling and it is showing up in the ABS figures on car registrations for February: down 3.5% on January and a huge 18.6% on February, 2008.
Imports of machinery and transport equipment fell by almost $1 billion, to $5.25 billion from $$6.12 billion in January
The ABS said the seasonally adjusted estimate for total sales of new motor vehicles was 73 190, down 3.5% compared with January 2009.
"On a seasonally adjusted basis, February 2009 sales of all vehicle types decreased, other vehicles by 4.4%, passenger vehicles by 3.8% and sports utility vehicles by 1.7% when compared with January 2009," the ABS said.
On a trend basis the ABS said that "Compared with 12 months earlier, sales of
