QTPA Member Alert | Forecast for 2013 (14/1/13)

Our world of 230 nations and principalities is expected to grow by some 3.2% in 2013, with a GDP in purchasing power parity terms of around US$87 trillion.

As the first chart shows, a falling world GDP is a rarity and has only occurred in three years over the past three-quarters of a century (1945, 1946 and 2009).

Interestingly, there has been a prima facie long business cycle averaging 8.5 years in the global economy since the onset of the post-Industrial Age from the mid-1960s onwards, a feature also of the US economy and ours in Australia (as we will see shortly). If this continues, it is unlikely the world will be recession-prone this side of 2018. Here’s hoping.

There are troubled parts of the world, as the second exhibit reminds us. They include Japan with the world’s highest debt level, and the European Union with dangerously high debt and no economic growth this year or next, as they work through their tasks of austerity measures, reining in runaway deficit budgets and reducing scary levels of unemployment in Spain and Greece in particular. And the United States is the third troubled area.

All told, this cluster accounts for almost half the world’s economy. Fortunately, the other half is in much better shape: Asia alone is growing at close to 7% per annum, so we begin each year with a growth rate these days of close to 3.5% anyway.

The outlook for the world’s Top 20 nations – accounting for almost 80% of world GDP – is a mixed bag as always, with outlooks ranging from a depressing contraction of 1.7% for Spain to a recovering 8.5% for China.

Some uncertainty has been removed in 2012 with elections in France (where the voters are not sure they have chosen well) and the United States (where the voters settled for the status quo with Obama, rather than taking a dive into the unknown with Romney). There will still be little joy in those nations that caused the global financial crisis for some years yet, with most of them taking the rest of this second decade to restore their mojo.

Australia’s prospects remain good but sub-optimal. We have the lowest national debt as a share of GDP in the developed world, courtesy of the Howard and Costello reign to 2007, and the addition of $160 billion since then, profligate as it is, has not endangered the economy as yet.

Of much greater concern is the ongoing minority government, prisoner of a minority party and independents, paralysed or unwilling to introduce growth and productivity improvement measures, and unwilling to restore taxation levels back to the then very low levels of 2007. IR legislation has been tinkered with, but remains a regressive Act that is antipathetic to the necessary direction of employment in the 21^st century of fierce competition – especially in our own Asian mega-region – and the preferred reward mechanisms of the Net Generation that will outnumber the baby boomers in the workforce by the end of this decade.

Nevertheless, an election is due in 2013 that may or may not lead the nation into a reforming, innovating, Asia-orientated (yet globalised) and vibrant economy.

In the meantime, the nation’s GDP is expected to grow by just under 3% in calendar 2013. Any incipient recessionary conditions are unlikely this side of 2018 given the clear, if not fully understood, presence of 8.5-year average cycles in the economy, as the fourth chart demonstrates.

That said, there are any number of ‘disturbances’, as suggested in the fifth exhibit, that cannot be ignored.

The long-term challenges are already endangering the viability of many companies, if not whole industries, such as media (especially print) from the internet advance, retailing (especially personal and household goods) from online shopping, and some personal transport due to the emerging surrogate transport options including teleworking and telepresence communications. The quick and the dead, so to speak.

So where do our industries sit as we prepare for 2013 and the rest of the decade? The mix as at June 2012 is shown below.

The economy is already dominated (73% of GDP) by service industries, most notably the quaternary sector (from Information Media and Telecommunications to Education on the chart), which account for virtually half the nation’s wealth production. This is the fastest growing sector, followed by the quinary sector (Health, Hospitality, Entertainment, and Personal & Other Services).

Mining has seemingly been a boom industry for many years, but in reality its physical output had risen by 40% in aggregate to 2011-12, but with prices closer to 400%: a prices boom, not an output boom. Indeed, its growth has been ahead of the nation’s average, but not by a huge margin in physical terms. That said, the mining industry’s share of GDP may not peak until well into the 2020s, even if prices (in real if not also nominal terms) have already peaked. At that time energy minerals will account for some 60% of the industry’s revenue output, on the way to 80% by the decline and bottoming-out of the cycle around 2040.

So, the mining industry will continue to bolster the economies of Western Australia and the Northern Territory and, to a much lesser extent, Queensland and possibly South Australia.

Then there are the industries under the hammer due to any number of factors such as an overvalued dollar, import competition, union pressure if not occasional thuggery, ill-prepared management, radical new technology (be it all-pervasive or industry specific), weather and other factors. These affected industries include manufacturing, inbound tourism, retailing, some construction sectors, utilities (especially electricity) and agriculture (in terms of decent returns).

But, compared with other OECD nations, we are still the best place in which to invest, work and live. So, 2013, here we come.

 Phil Ruthven,
Chairman of IBISWorld