Europe is likely to muddle through 2012, providing a fillip for retailers and homebuilders, and adding to solid economic growth in Australia as it gathers steam after last year’s natural disasters, according to a new report.
"If the world muddles through, then Australia will grow faster than you think it will: surging resource construction will underwrite a lot of growth, as will a further rebound in coal output from the early 2011 floods,” Deloitte Access Economics says in its Business Outlook, released this morning.
“That will combine with better news in retail and home building (thanks to Reserve Bank rate cuts) to keep growth relatively rapid in 2012, though it may lose some steam in 2013 as the rebound in coal output runs its course.
“Moreover, that acceleration in growth would occur despite well-publicised negatives: the hit to consumer and business confidence from the horror headlines in Europe, the winding back of Federal Government stimulus, and continuing pain for many firms from the $AUD’s stellar strength.”
But the December 2011 report warns that if Europe blows, Australia’s outlook tanks – delivering a rise in unemployment, a huge deficit, and necessitating another stimulus package.
“Resource sector construction would still surge, leaving us among the fastest-growing economies in the world.
“Yet that would be little consolation: growth would still slow and unemployment rise as (1) confidence saps spending by firms and families here at home, (2) the weak world economy cuts commodity prices (and so national income), and (3) money becomes ‘too tight to mention’, as European bank failures would mean a credit crunch even if the RBA cut hard and fast.”
The report also says the job outlook is weak in the short term, with the reluctance among employers to take on additional workers expected to lift the unemployment rate from the current level of 5.2%.
Sector by sector, Deloitte Access Economics says the high Australian dollar and interest rates, the poor pace of home building, and changing technologies and tastes will continue to pressure manufacturers, tourism operators, education providers, builders and printers and retailers.
The finance sector will also be nervous as it ponders weak credit growth for the foreseeable future, it says.
But overall, Deloitte Access Economics says growth in the wider economy looks set to be solid, with Chinese strength tipped to trump European weakness, providing ample opportunities for the engineering construction and mining sectors.
“Despite the well-publicised news of its death, Australia’s economy continues to recover strongly from the global crisis of 2008-09 and from the floods and cyclones of early 2011,” the report says.
“The Australian economy’s growth through 2011 – a year of slings and arrows, floods and cyclones, and fear of financial crises – has been little short of remarkable.”
The report adds that the oft-repeated line that consumer spending is struggling does not take into account consumer spending on things that are not sold in shopping malls, such as cars, electricity and water, rents and even restaurant meals.
Spending on this group has been growing fast, it says, leaving the overall pace of spending by consumers running at or even above trend.
