The data flow for next Wednesday’s first quarter growth figures steps up today when the value of construction work done in the March quarter is released by the Australian Bureau of Statistics.
Sounds boring, but when looked at with tomorrow’s new capital spending figures (actual and planned) for the same quarter, we will get the best current picture of the powerhouse of our economy in the past three years: the resources boom.
Last week ABARE (the federal government’s commodities forecaster) revealed there had been a drop in actual and planned new resources projects in the six months to April.
The figures today and tomorrow will confirm that downturn, and should alert us to tougher times ahead over the next year to 18 months, despite the upturn in financial markets.
Whether we will listen is another thing.
Certainly economists and analysts at Bank of America/Merrill Lynch are concerned we have become too ready to forget the bad news.
They have warned this week that Australia and Australians have become too complacent about "potential poor economic conditions in Australia" over the next year.
The warnings have come in the past two days of client notes, with economists warning yesterday of the impact of the sizeable downturn in demand for our strongly performing export sector in the months ahead.
"We don’t want to overstate the case for Australian economic weakness for the remainder of this year but we do think that there is complacency about what lies ahead," ML economists wrote.
And yesterday broking analysts warned, in a sweeping downgrade to the outlooks for some of our major retailing names, that "Households and businesses are expected to find it tougher in the months ahead with both profits and wages hurt by the income effect of a delayed drop in commodity prices and investment".
The warning comes as the Organisation for Economic Co-Operation and Development has released figures showing the worst ever performance by the 30 countries as a whole (plus the six major non economic members such as China and Brazil).
Based on preliminary estimates, the 30 OECD and the six other economies saw growth contract by 2.1% in the March quarter, the biggest ever fall recorded by the OECD, following the 2.0% contraction in the December quarter.
Our 1st quarter growth figures are out next week and estimates put our contraction around 0.3% to 0.5%.
That would make it the first recession since 1991, but even so, many analysts point out that compared with our trading partners, its outperformance.
This view has been supported by solid retail sales figures, building approvals and housing finance numbers for February and March, while the jobs situation refuses to worsen like it has in the US, UK and Europe.
In fact since Lehman Brothers collapsed last September, Australia has seen 177,000 jobs lost, while 62,000 have been created.
That’s a far more buoyant labour market than in our trading partners.
Hence this feeling of complacency that Merrill Lynch has warned about this week.
The economics team said Monday:
"Data over the next fortnight should show that, during the just completed half year of global economic “heart attack”, Australia’s GDP contracted only very modestly despite a 6 to 7% annualized drop in trading partner activity.
"It is hard to believe that Australia won’t now under-perform other economies in the next phase, especially since Australia’s National Accounts have benefited from a very large positive net export contribution, at odds with the global implosion of trade, suggesting lags are at play. Moreover, a leading indicator comparison suggests Australia is vulnerable to ‘catch-up’ deterioration.
"We don’t want to overstate the case for Australian economic weakness for the remainder of this year but we do think that there is complacency about what lies ahead."
Looking at two leading retailers, David Jones and the still rapidly growing JB Hi-Fi, ML said yesterday: "We believe they have a very tough 12 months to get through with economic conditions in Australia likely to deteriorate.
“We believe that there is too much complacency toward potential poor economic conditions in Australia – highlighted by the recent out performance of the discretionary stocks in the last few months.
"Households and businesses are expected to find it tougher in the months ahead with both profits and wages hurt by the income effect of a delayed drop in commodity prices and investment.
"This was seen in Canada, Norway and New Zealand, where the income effect of falling commodity export prices through the economy was initially underestimated by the respective central banks.
"ML Economics has also noted leading economic indicators have been just as weak for Australia as they have for the top 36 countries (OECD30 plus the 6 major non member economies), with indicators worse than in the 1990s.
"We have downgraded our recommendations for the discretionary retailers.
"Although FY09 for the retailers could surprise on the upside, we believe FY10 will be a year of heavy disappointment, as economic conditions in Australia are likely to be at their worst.
"Like our Australian Economist, we believe that there is a high level of complacency broadly in Australia toward the economic conditions that potentially lay ahead.
“Australia has been insu
