Two Speed Economy Gathers Pace

8 Feb 12

The guessing game for the economy this year sees most economists agree with the view that the two speed economy will gather pace and continue to widen.

Yesterday's announcement that interest rates are to remain on hold with a basic cash rate of 4.25 percent is a two edge sword and does not help our beleagued manufacturing sector in anyway. On the news of the Reserve Bank's (RBA) decision, the dollar immediately strengthened putting further pressure on manufacturing exports, and our manufacturers remain at the mercy of higher financing costs.

Economists say that on the one side the mining boom is contributing to a very strong trade surplus but the much publicised slide in retail spending is expected to continue unabated, yet the latest numbers of jobs adverts are the highest for two years, as are the announcements of job losses. Reports suggest that the service sector has recorded its best growth in five months.

Last year's solid performance in new car sales which topped a million units for the fourth time, is predicted to continue through 2012, but Australia's love affair with the large cars it produces is expected to continue to slide in place of SUV's and smaller cars. Australia must continue to support the automotive sector as this is where innovation is born. At around $18- per annum, per tax payer in support, which compares very favourably with other nations, this is a small price to pay for the benefits the automotive sector provides in innovation and employment, but the local sector must respond to consumer trends in return.

Research into the latest retail shopping trends suggests that shoppers will continue to move away from local shops. It shows over half of all department stores visited online are based overseas. There are a few Australian sites doing well in this competitive industry but analysts agree that 50 percent of all online shopping in dollar terms is being spent overseas.

Australian Bureau of Statistics (ABS) data suggests that housing prices declined 4.8 percent over 2011 and analysts hold the belief they have bottomed out.

The RBA's decision has in effect stated the view that all the basics are good: employment, confidence, demand and credit.

There are many in the real world who would not agree with this view.