Official: We're In A Rural Recession
Sydney Morning Herald
Friday October 13, 2006
AUSTRALIA is in the grip of a "rural recession", while employment is rising so fast in the cities that interest rates may have to be lifted next month.
Hot, dry winds this week have devastated hopes that rain might salvage something of the coming summer grain harvest. Rural land prices have plummeted, grain prices have spiralled upwards and concerns are rising about the possible onset of climate change. "It's a rural recession," said the Treasurer, Peter Costello. "The situation is worsening and for most of the wheat belt we will not be getting a crop."The Bureau of Statistics said yesterday 205,000 jobs had been added across the country in just six months, leaving the unemployment rate at 4.8 per cent. Of those new jobs, 184,000 were full-time, including 36,000 created last month. Mr Costello said Australia had reached its low-unemployment destination. "When unemployment is that low that must mean we have actually arrived at the destination we have been working towards for three decades."The figures add to an economic "puzzle' identified this week by the new Reserve Bank governor, Glenn Stevens. Official figures show jobs growth has been unusually high, gross domestic product (output) growth unusually low, while the productivity of each worker has not increased at all in 21/2 years.Mr Stevens warned that if the figures are true, potential economic growth has fallen to less than 3 per cent and inflation "could well increase", requiring higher interest rates. Mr Costello said the unusual mix of figures was a "conundrum". He preferred to look at indicators such as commodity prices and rainfall, which were cooling, suggesting a further rate rise would not be needed."I actually believe that the price cycle has probably peaked in terms of commodities," he said.Perversely, the drought will do little to reduce the likelihood of rising interest rates, because rising grain prices lift the price of bread and therefore inflation.Falling meat prices will work the other way, as farmers slaughter stock they cannot feed. John Edwards, chief economist at the bank HSBC, said: "Mostly the impact should be to cut output growth and increase inflation."The chairman of the Grains Council of Australia, Murray Jones, has forecast the wheat harvest will be 60 per cent down on last season, at 10 million tonnes. But this week's "extraordinary hot dry weather" appears to have made that forecast out of date. "We're losing millions of tonnes of wheat every few days," he said. "The final wash-up will be considerably less." Real estate agents in the state's southern grain belt report farm land price falls as farmers give up after five dry years."There has been a 20 to 30 per cent reduction in prices within the past couple of months," said Andrew Mitchell, an agent from Boorowa. "People are starting to think that maybe it's global warming."The drought is expected to slash between 0.5 per cent and 1 per cent off GDP growth. Observers believe there is a 50 per cent chance of interest rates rising after the next Reserve Bank board meeting on November 8, despite rural Australia being in recession. "The RBA governor made it clear that the bank is currently much more concerned about perceived inflationary pressures rather than the risk of slower growth," said Brian Redican, a Macquarie Bank economist. Sydney and other NSW urban centres are also experiencing flat conditions. NSW added 6000 jobs in September, including just 1000 full time, leaving the unemployment rate to fall slightly to 5.5 per cent. Jobless queues have steadily fallen across the country, but barely budged in NSW. The national jobless pool has fallen from 564,000 to 515,000 in two years. The state figure has risen from 171,000 to 192,000.The national participation rate, which shows the proportion of working age people in work or looking for it, rose to a record 65.1 per cent.The NSW participation rate remains at 63.3 per cent. Figures this week from Insolvency and Trustee Service Australia show the number of NSW bankruptcies rose 13 per cent in the September quarter to 2153. Farms struggle; analysis - Page 9
© 2006 Sydney Morning Herald