On Tuesday, the governor of the Reserve Bank, Glenn Stevens, described the pace of growth in Australia’s economic output as ”modest”. National account figures released the very next day revealed it was distinctly immodest.
A bulging annual growth figure of 4.3 per cent appeared, on the back of a muscular mining sector and unexpected ripples of spending from consumers.
The Treasurer, Wayne Swan, somewhat proud-chested, released a statement saying the figures showcased Australia’s ”rock-solid economic fundamentals”. ”These outstanding results are another testament to the resilience and hard work of the Australian people, and to the government’s record of achieving world-beating results for our economy through turbulent global times.”
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Chest-beating, more like. But well deserved, at a time when David Cameron’s economy shrank 0.1 per cent, and Angela Merkel’s grew just 1.2 per cent.
The Gillard government had more reasons to crow yesterday with news that the Australian economy added a net 40,000 jobs last month, all of them full-time.
In the international economic bodybuilding contest, Australia’s muscle-bound economy wears the medal. Of all the washboard-stomached warriors of ancient Greece, Australia is Achilles, the most handsome and fearsome of all.
So why do we feel so puny? Consumer confidence remains at near recession levels. Uncertainty about Europe and the global economy is part of the answer. But the real answer lies closer to home.
Australia’s subdued property market is the missing link between strong growth figures and low consumer confidence. Housing is the reason Australian households have been limping around like wounded deer, despite our rock-solid mining abs of steel. Housing is our Achilles heel. On Tuesday, Stevens acknowledged the weak housing market: ”Housing prices had shown some signs of stabilising around the turn of the year, but have recently declined again. Generally, the housing market remains subdued.”
After falls of about 5 per cent last year, figures from RP Data-Rismark show home prices fell 1.4 per cent last month alone across five capital cities – Sydney, Melbourne, Brisbane, Adelaide and Perth.
Over the year ended May, the falls range from 8.5 per cent in Melbourne, to 6.5 per cent in Brisbane, with Sydney down by a smaller 3.5 per cent. Sydney’s housing boom went bust nearly a decade ago now, giving it a head start on price pain.
Meanwhile, uptake of new mortgages remains weak, with little reaction among households to recent Reserve Bank interest rate cuts. Turnover has slumped, with families preferring to withhold properties and not sell into a weak market.
In a speech in March, Reserve Bank deputy governor Philip Lowe noted: ”In the early 2000s, when the property boom was in full swing and investors were busy buying properties to rent out, about one in 12 dwellings in Australia was changing hands each year. Today, the rate of turnover is only about half of this.”
The weak housing market has taken its toll not only on the real estate sector, but has also led to job losses in the finance and banking sector due to lower loan growth.
This has had an almost circuitous effect on the high-end Sydney property market, with finance sector job losses – the result of a weak market – feeding back into forced sales in some suburbs and even weaker prices.