Tuesday, 13 December 2011

Parkinson and Battelino Singing the Same Tune

In the last 24 hours, Treasury Secretary Martin Parkinson and the outgoing RBA Deputy Governor Ric Battelino have given important speeches on the economy and issues that will likely dominate the policy focus into 2012.

For Parkinson, there was the usual frank assessment of the issues confronting the economy into 2012. While the main risk noted by Parkinson was intertwined with the problems in Europe, he went out of his way to highlight the ongoing moderation in government revenue from what will become a protracted period of mediocre growth in the economy.

Most disconcerting, but a point that is increasingly apparent to those willing to look outside the local economy for clues to the outlook and risks for Australia, Parkinson noted that “Chinese inflation’s peaked. The [Chinese] economy’s slowing … it would be appropriate to start to ease off on monetary policy and that’s essentially what’s happened in China.”

This is big.

For uber hawk Battelino, who rarely sees any downside risks to growth or inflation in Australia, there are some negative aspects to the Australian economy. In particular, Battelino made a clear statement that he and the RBA were concerned that events in Europe would impact on Australia, although the magnitude of the negative shock was hard to quantify.

He noted, “The large size of the euro-area economy and the significant role played by European banks in global cross-border banking mean that it is inevitable that there will be spillovers to other parts of the economy, including Australia.”

As 2011 draws to a close, it is refreshing to see the official family looking outside local events to see the issues that are likely to impact on the economy into 2012. It is adding up to a position where the Australian economy, although doing OK, is on edge with some negative shocks more likely than not to hit Australia in 2012.

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