The last 24 hours have seen the release of a sobering NAB report on its monthly business survey (Business conditions collapse in June, retail worst hit, says NAB) and the latest IMF World Economic Outlook, which has slightly downgraded China’s growth forecast but boosted Japan’s (Emerging Market Slowdown Adds to Global Economy Pains). With Japan being a major trading partner of Queensland’s, I’m hoping the better outlook for Japan largely offsets the slightly worse outlook for China.
Overall, in Australia, it’s starting to appear that there won’t be a smooth transition from the peak of the resources boom – i.e. other sources of activity won’t immediately substitute for mining investment which is starting to come off its highs. Part of the problem is the cautious consumer, as evidenced by a high household savings ratio (discussed in a previous post) and below trend household consumption expenditure (see chart below, based on the most recent Queensland State Accounts data, with my trend line in red).
While I was less concerned than many commentators about last week’s retail trade data, it is undeniable that consumer spending has been lower than might be expected based on an extrapolation of the historical trend. It’s hard to see what could boost consumer spending and thus inspire business confidence over the current financial year, so I expect 2013-14 will be another financial year of sluggish economic conditions.