In the post-financial crisis world, a string of good economic indicators can be more worrying than comforting, with people continually asking: ‘Is this the peak? Are things about to crash?’
And yes, in the past week we’ve had enough good news to make this commentator decidedly edgy.
Here’s the quick list.
- Last week’s jobs numbers continued to strengthen, not only in the number of jobs, but in the aggregate hours worked
- The ASX 200 share index has climbed and climbed to be back to the highest level in two-and-a-half years
- The price of our biggest export, iron ore, that many thought would be far lower by this stage of the year, seems to be staying put at just over $60 a tonne, or about 10 per cent higher than forecast in the May federal budget
- The Aussie dollar, though many exporters wish it to be lower, is reflecting stronger-than-expected economic conditions by hovering just below 80 US cents
- The often-predicted house price cash, which again many would-be buyers have hoped for, doesn’t seem to be eventuating – although an apartment bust is well under way
- And the latest inflation data, though still too low, could have been much worse. It edged down from 1.9 to 1.8 per cent, but keep in mind that a year ago it was just 1.1 per cent.
To any incumbent government a couple of years out from the end of a mining investment boom, that’s a pretty good set of numbers – the ‘transition’, they’ll tell you, is well under way.
And yet … that feeling in the pit of one’s stomach says that the whole edifice is fragile.
What if the iron ore price falters? Would the jobs numbers reverse? Could we lurch back towards dreaded deflation? And would the nation’s house-based personal wealth come tumbling down?
These are fears I put to economist Saul Eslake this week – a man whom one suspects reads economic news all night in preference to sleeping.
His answer, though extensive and complicated, can be boiled down to essentially three things.
Firstly, the European Union’s economic recovery is stronger than most people expected a year ago – a fact reflected in buoyant consumer and business confidence, and fairly strong performance in share and bond markets.
The Euro-optimism has been further boosted by the staring down of potentially destructive far-right political parties in elections across the continent.
And at the time of writing, all that optimism is expected to lead the European Central Bank to announce early on Friday morning a winding back of its stimulatory ‘quantitative easing’ program.
The second link in the chain is China, which is expecting its exports to Europe – as a bloc, its biggest market – to return to healthier growth.
China-watchers have been warning of a credit implosion in China, a meltdown in its shadow banking system, a property crash or political unrest in its western provinces … or all of the above.
However, Mr Eslake sees stability, not chaos, being reinforced in the Chinese economy day by day.
Besides the hopeful signs in the EU, China is finding its feet within a global economy in which Russia and Brazil are emerging from recession, and the US growth, while not as promising as Europe, is at least headed the right way.
And the third link in the chain is little old Australia, and a positive commodity price story that nobody expected to see a year ago.
Rather than being a standout economy – as it clearly was during the mining investment boom of 2004 to 2013 – Australia’s current, surprising success is simply a “mirroring of international conditions”, according to Mr Eslake.
That might put Treasurer Scott Morrison’s nose out of joint – all governments like to take credit for good times – but it is true that our terms-of-trade, exchange rates, commodity prices and export market growth are mostly dictated off-shore.
To rule out an outbreak of financial chaos, a house price crash or whatever, is never wise. But Mr Eslake, as one of Australia’s most cited and respected economists, is clearly leaning towards a brighter forecast.
Other economists, such as Robert Shiller in the US, or bond-market guru Bill Gross are still sounding warning bells about the global economy’s ability to drag itself, at last, out of the morass of the global financial crisis.
But in Australia, the glass looks half full. Good news, it would seem, doesn’t have to precede a crash.