Some commentators have likened Australia and its economy to Goldilocks: not too hot, not too cold.
Years ago we were described as "The Lucky Country" by the late Donald Horne. It wasn’t a term of endearment.
And yet we continue to muddle on, and was close to the best performing of the major developed economies in the March quarter.
Which is amazing, but probably temporary.
But while confidence swells we should remember there are more than enough traps to avoid before we can keep claiming that uncertain title in coming months.
However, the news saw the Australian dollar climb half a cent to above 82.50 US cents in local trading and the stockmarket jumped back above 4,000 points for the first time in months, with another rise of more than 60 points for the day.
But markets turned down overnight as US investors rediscovered the slump.
Major markets in the USA and Europe fell, the US dollar rose sharply, forcing oil down $US2 a barrel to just over $US66 and the Aussie dollar lost 2.5 cents to close at 79.85 US cents.
Government spending and 4.25% of interest rate cuts, and a lot of hard work by a lot of Australians, has kept the bear of recession at bay for another quarter, one that was expected to be negative.
But instead of the slump we got surprisingly good March quarter figures showing a 0.4% rise in Gross Domestic Product .
Compared to the likes of the US, Japan and Germany, we are positively ‘hot’ (in growth terms).
But a word of warning. Like all those green shoots emerging from overseas, there was a lot of artificial stimulus.
Government spending and rapid rate cuts because of the nasty slump in the wake of the Lehman Brothers collapse have done what they were supposed to do, limit the damage from the crunch and the intense recession in many of our major markets, especially Japan, while growth in China seems to have come to a standstill for a while. Like we did in the December quarter.
It was supposed to be a recession, the Global Financial Crisis has certainly crunched us (just ask sharemarket and super fund investors); the Global Recession has ended the resources boom, but is helping us tame inflation, unemployment has risen from a low of 3.9% to 5.4% in April. It wasn’t supposed to end up with positive growth and growth of 0.4% at that.
And yet for most of the first four months of the year it seemed as though we were heading for our first recession for nearly 20 years.
And then something turned.
March retail sales were stronger, building approvals kicked higher, car sales proved to be a bit better than expected and unemployment took a turn for the better in April (admittedly off an odd sample).
Sentiment changed as the rebound in global markets accelerated.
Growth of 0.4% in the March quarter and non-farm growth up 0.8%, and through the year to the end of March, GDP up 0.4%, while non-farm growth was flat, eliminating the decline seen in the December and September quarters.
All this when the rest of the world (outside of China, India and some smaller economies) were being battered by the crunch and recession like they have not been battered for 60-70 years.
To look at it another way, the OECD has estimated that first quarter growth in its 30 member economies (including Australia) and the four major non members fell 2.2% in the March quarter. We are a long way from that.
The IMF reckoned our economy would shrink by around 1.6% this year. That’s still possible, but only if we see a very sharp slump in the next six months. With housing growing and retailing sold, that’s hard to see.
The US, Japan, Europe and the UK all saw their economies contract by 1.9% to 4%: nasty falls all.
So, instead of experiencing our first recession for almost 20 years, we seem to have avoided it and remain on track for a financial year of positive growth.
Unemployment remains the big imponderable: it is going to rise, the damage to companies, industries from the credit crunch and recession has been too great.
For that to be achieved, the economy would have to fall very sharply from about now on.
But retail sales for April rose a solid at 0.3% and building approvals jumped by more than 5% (and 7.2% for private homes as the first home owners/building grant kicks in) and will support a lot of domestic demand for the next year.
Interest rates will remain on hold: the Reserve Bank now has firm evidence of what the lower interest rates and the government stimulus spending can (and has) achieved.
There are billions of dollars in new spending yet to flow on in infrastructure.
The growth figures vindicate the two ‘cash splashes’ from the Federal Government and the expansionary budget (Could there now be too much spending on its way though?). Keep in mind thoughts of a rate rise, simply to slow a rebounding economy, even as unemployment rises.
But if the fall in labour costs and the expected drop in inflation do have the positive impact the RBA hinted at in its post board meeting statement on Tuesday, then one or two more rate cuts are not out of the question.
But these growth figures will give the RBA room to pause for longer on rates.
The big imponderable is the value of the Australian dollar. It reached over 82 cents in offshore trading Tuesday night and was trading around 82.25 US cents.
If it continues to go higher it will reduce the external pressures on inflation, but undermine export income at a
