Forklift News - Industry challenges will multiply

A feature article in ANZ’s June quarterly economic report says industry challenges will multiply in 2008.

According to the report, written by Mark Rodrigues and Julie Toth, Australia’s economic landscape over the next 12 to 18 months will be shaped by the interaction of two powerful and opposing forces. On the one hand, rising interest rates – from both official and market sources – and tighter access to credit threatens to expose the nation’s reliance on foreign borrowing to fund domestic consumption and investment. On the other hand, the combination of still-strong demand from developing economies and tight supply looks set to deliver yet another leg up in the current commodity price cycle. If expectations for contract prices for bulk commodities are realised, Australia’s terms of trade will rise by a further 20% in 2008, delivering some AUD55 billion (4.5% of GDP) in additional income.

The report says expectations are that economic growth will slow to 2.5% by the end of 2008, from the current above-trend pace of around 4% per annum. But due to the forces at play in the economy, this slowing in the pace of economic activity will not be felt uniformly across industries.

The report adds impetus to statements made by the Reserve Bank governor Glenn Stevens following the Board’s monetary policy meeting on Tuesday this week, when it was decided to leave the cash rate unchanged at 7.25%, based on financial indicators.

According to a statement by Stevens, "While labour market conditions to date have remained strong, indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has weakened significantly."

However, Stevens noted that the rise in Australia’s terms of trade that is currently occurring will work in the opposite direction.

"It will add substantially to national income and ability to spend, even with the slowing in global growth to below-trend pace that the Bank is assuming.

"Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation. On balance, the Board’s current assessment is that demand growth will be moderate this year. In the short term, inflation is likely to remain relatively high, but it should decline over time provided demand evolves as expected. Should demand not slow as expected, or should expectations of high ongoing inflation begin to affect wage and price setting, that outlook would need to be reviewed."

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