Australia’s 3 speed economy (but not what you’re thinking)

In continuing the abuse of worn out clichés, Australia is constantly promoted as having a 2 or 3 speed economy by various media pundits. Predominantly these speeds are variations on the rates of moving forwards. I’ll use the latter reference in a slightly more realistic manner, whereby the 3 speeds are in fact forwards, nowhere (neutral) and backwards (reverse). Using the latest trade figures from the Australian Bureau of Statistics (5206 Series, Australian National Accounts: National Income, Expenditure and Product) it is clear to which Australian States each applies.

The assessment below is particularly relevant in this current environment of declining and negative (deficit) Balance of Trade while many broader global manufacturing indicators (PMI’s) decline into contraction. All the while the ‘Great Debt Debate’ rages on challenging the neo-non-neo imaginations and procyclic prohibition of disequilibrium instability. However, in regard to the Australian Balance of Trade, there is a dominant 2yr 20week peak to trough (Pk-Tr) period in the Goods and Services balance of trade that very clearly cycles in and out of surplus. I identified this cycle in mid 2010 and used it to forecast a peak in the Aus BOT around Jun/Jul 2011 at the time. Optimism says the negative cycle (probably) won’t be as low (negative) as the previous low. However the volatility observed in the demand for Australian Goods and Services is nothing short of tremendous. This is a bad thing, since it places Australia in a precarious Current Account/Terms of Trade position given our highly concentrated dependency on the demand for just 2 critical commodities in just 4 local export markets. None of this could come at a surprise, as it has been readily available since 2010. Eventually, some of the trade burden will be shared by the increasing NatGas LNG export trade out of WA and QLD.

(click all images for full size)
AUSTRALIA – NET BALANCE OF TRADE (Goods and Services)
Australia - Balance of Trade - Monthly - click image
– dominant 2yr 20week peak to trough, breaking up recently into higher frequencies
– next cyclic minima expected Aug/Sep 2013 (yes, NEXT year)
– previous analysis of trade in 2010 showed highly dependent on coal and iron-ore
– previous analysis of the export markets in 2010 showed highly dependent on China, Japan, Korea, India

The linear regression average of the trade balance is obviously trending negative. Based on the most recent higher frequency high volatility cycles, it is suggesting volatility is going to continue while trending into the next minima. So large swings in monthly trade balances about a declining central average would be very likely into Aug/Sep 2013. This is indicative of the uncertainty and volatility in the policy debates ongoing around the world. The 2yr20wk period will remain dominant as a pk-pk higher frequency max/max and min/min forecast. Next 3-4months into end 2012 to remain small positive trade surplus based on this, then dropping below zero in 2013.

CLOSE UP
Australia - Balance of Trade - Monthly - click image
– note the recent higher frequency reversals with very high volatility

AUSTRALIAN TOTAL AGGREGATE DEMAND (and by State)
Australia - Aggregate demand (total) - quarterly

In no particular order, there is an abyss between performances from top to bottom with the best performing (WA, QLD, SA) and the worst performing (NSW, VIC) dependent entirely on how you view deficit spending and debt accumulation.
(NOTE: Throughout the following charts, the distinction in what contributes growth or the lack of)

NEW SOUTH WALES
NSW total demand and international trade - quarterly
– “reverse” on slowing output, flat private capital, households are providing all the growth
– large (largest) and increasing deficit on rising imports with flat exports
– doing nothing to address the trade deficit

VICTORIA
Victoria total demand and international trade - quarterly
– “reverse” on slowing output, flat private capital, households are providing all the growth
– large and increasing deficit on rising imports with flat exports
– doing nothing to address the trade deficit

QUEENSLAND
QLD total demand and international trade - quarterly
– “forwards” (only just), slowing output with declining surplus
– recent surge in private investment (?can it hold?)
– NatGas (LNG) exports yet to come online, heavily coal dependent surplus
– declining surplus on rising imports, needs to trim waste to increase net output

WESTERN AUSTRALIA
WA total demand and international trade - quarterly
– “forwards” (at full speed in top gear), increasing output with increasing surplus
– NatGas (LNG) exports to come online, heavily iron ore dependent surplus
– the powerhouse of Australia, private capital increasing

SOUTH AUSTRALIA
SA total demand and international trade - quarterly
– “neutral” slowing output with small flat surplus (ok, maybe it is crawling along)
– several resources based projects yet to come online
– at least it is not a bourden

TASMANIA
TAS total demand and international trade - quarterly
– “reverse” on declining output with declining surplus
– has stalled, is in need of help

NORTHERN TERRITORY
NT total demand and international trade - quarterly
– “forwards” (only just) in a choppy/wayward manner, recent surge in output on decreasing surplus
– resources focus with several projects yet to come online
– decline in existing resouces production

AUSTRALIAN CAPITAL TERRITORY
ACT total demand and international trade - quarterly
– “neutral” (being polite) is Australia’s federal state and only ever as good as the prevailing political bandwagon
– 1 step forward, 2 back, 1 forward (not necessarily in that order)
– contributes headaches and heartache to Australia’s declining output elsewhere
– has neither planning nor solution to the above forecast worsening situation

In any case, the laggards within the tiny and marginal Australian economy should be mildly appreciative of the remaining surplus provided by surplus exports of other states while trying to reverse their growing imbalances, and better address their balance sheets into the future. As luck would have it, coal and iron ore are 2 commodities among the most likely to suffer (and by the most reduction) in a global policy shift on climate change, specifically if carbon intensive industries are penalised. Delays in policy implementation, improved technology and advanced materials/production methods would mitigate some of the reduced demand coal and iron ore demand.

It is most clear from above that Australian State and Federal policies are not anticipating nor preparing for the eventual long term reduction in Australian balance of trade. That lack of preparation has only one conclusion. Hope you like (imported) bananas. If greed is good, then debt is better!! There is zero doubt that funding increased activity in the future is going to be an issue.

Refer: http://www.abs.gov.au Australia Bureau of Statistics
No smoke, mirrors, slights of hand or especially untechnical deceit was used in the making of this post.

regards,

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About atradersrant

Self-employed private trader of equities, commodities and FX for income and investment; Follow me at your own risk! I provide analysis of major market & economic trends .. with too much commentary on fraud and corruption that is rife in the open market.
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3 Responses to Australia’s 3 speed economy (but not what you’re thinking)

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