Australian economy grew by 0.6 percent; Australia avoids recession again

GDP figures released today showed that the Australian economy grew 0.6 percent in the three months to June. This compared with analyst forecasts of 0.2 percent downgraded after some gloomy figures earlier this week showed a slump in company profits and inventories and a drop in exports. The labor government, of course, claimed that this bullish performance is attributable to its implementation of monetary stimulus.

Treasurer Wayne Swan said, "Today's national accounts paint a picture of a still weak but very resilient Australian economy ... The government's stimulus is working to support jobs, build confidence, and invest in infrastructure for the future, but the job is clearly still not over. The government's economic stimulus is still needed to support activity and jobs. However the prospect of a gradual pick up in private sector activity will allow the staged withdrawal of the stimulus to proceed from the December quarter this year, as foreshadowed in the 2009/10 budget."

Yes, clearly the job is not over, the ASX-200 traded 100 points lower despite the bullish economic figures. Prior to the release of GDP figures, the Australian Dollar was heavily sold against the US Dollar during the London and US session, dropping from 0.8450 to the 0.8250 level, following a cautious RBA statement yesterday.

The first stimulus package consisted of a $10.4 billion payment to pensioners, families and carers, and a boost to the first homebuyers grant. The second package consisted of a $42 billion to provide funding for a range of infrastructure and nation building projects including:

• $14.7 billion for schools; and
  
• $12.7 billion in tax bonuses and one-off payments; and
  
• $6.6 billion for new housing projects; and
  
• $3.9 billion to provide free roof insulation; and
  
• $890 million to fix regional roads and blackspots, and for regional and local government infrastructure.

This included the $950 cash hand outs, which probably did a better job in buying votes for the Labor party than it did to stimulate the economy. Many recipients of the payment simply used the free cash to pay down their loans or credit card debts. Nevertheless, this $950 was supposed to protect Australian jobs and to stimulate the economy. The $3.9 billion appropriated for the provision of free roof insulation was supposed to save the construction industry. However the industry would probably have simply cashed in on the stimulus by charging higher prices.

Criticism aside, the question pertaining to how the government is going to fund its stimulus package remains. The Emissions Trading Scheme (ETS) and the new alcohol and tobacco tax are two schemes that come to mind. Of course, these schemes are, in principle, supposed to save the environment and save our youths from binge drinking and smoking themselves to death. It also carries the added benefit of paying down the large budget spending authorised by the government. The recommended 17.5c a cigarette excise hike stands to boost the Treasury bank accounts by $2 billion annually.

It is great to see our government is finally considering ways of repaying its 'rushed' stimulus package, but maybe what we simply need is a Liberal government who can drive our economy back into surplus territory.