Australia is like one of those nice, industrious, middle class kids at the back of the class. Pleasant enough, but apt to be overlooked. But this blog can no longer ignore events down under. It's been a busy few days:
1. OECD heaps praise on Australian economy. After 15 consecutive years of economic growth, another good 'report card' was never in doubt. The OECD expects the Australian economy to grow by 3% this year, rising to 3.5% in 2007. Its GDP per capita has now surpassed all G7 countries except the United States. So the challenge was to come up with something to criticise in Monday's OECD Economic Survey of Australia (summarised in the free Policy Brief, PDF).
The report picked on the complex system of federal-state funding and public service provision, the need for further reforms to infrastructure services, and measures to raise labour force participation. The OECD warned that Canberra had to guard against both inflationary pressures and the eventual downturn in commodity prices. It also said Australia's central bank "scores poorly" on transparency. The Reserve Bank of Australia does not publish explanations for 'no-policy-change' decisions, nor does the bank release the minutes of its board meetings. All important enough, to be sure, but hardly suggesting imminent crisis. Which is probably one reason why...
2. The Australian Prime Minister is to contest a fifth term. To the chagrin of perpetual Treasurer Peter Costello, Prime Minister John Howard yesterday announced that after a decade in office he would be seeking a fifth straight term at next year's federal election. According to Reuters:
"I remain enthusiastic and keen to ensure that the coalition achieves a fifth electoral victory," Howard, who turned 67 last week, said in a letter to parliamentary colleagues.
Just check out the smug grin in this photo. I'm not sure Treasurer Costello is smiling though...once again Howard has out-flanked, out-witted and out-muscled him.
3. New central bank governor announced. Glenn Stevens, deputy governor of the Reserve Bank of Australia, will take over as RBA Governor from Ian Macfarlane, who is to retire in September. Stevens was one of the architects of the bank's move to inflation targeting, and understands the monetary policy decision-making process backwards. Don't expect greater transparency from him, though. In the above story, he is dismissive:
Reserve Bank Deputy Governor Glenn Stevens said recently that releasing the minutes of board meetings would not reveal significant additional information. "We're open-minded on these things, we're just not persuaded,'' Stevens told economists in Sydney on July 13. "That doesn't mean that at some future time we won't reconsider, but thus far we haven't found the arguments in favor of that form of additional disclosure to be all that convincing, given the amount of information that is already out there.''
Somehow I doubt the RBA will be prepared to abandon its secretive inclinations. Its rather unimpressive Board is a key reason - those transcripts could prove embarrassing!
Stevens has a passion for cars, and has recently got his pilots licence. But at heart he appears to be a conservative, bible-bashing man of the suburbs (much like fellow Baptist Peter Costello). David Uren at The Australian has a profile of the man who has a head for figures:
He is in many respects an average suburban man, having spent nearly all his life in the southern Sydney suburbs. At university he drove one of the famous Holden Sandman panel vans that inspired the slogan "If it's rockin', don't bother knockin". Today, he prefers the German precision of a top of the line Audi, which costs as much as the average mortgage.
...Stevens lives in Sylvania Waters, the suburb made internationally famous by a 1992 reality television documentary of the same name. His home, which can best be described as modest for the location, is just a two-minute walk from a lawn bowls club and a hop, skip and jump from the Georges River. He lives there with his wife and two daughters, one of whom is in the work force. It is a large dwelling, but not in the same league as the nearby waterside palaces.
...But the most telling aspect of his personal life is his deep religious commitment. He is a member of the Heathcote Baptist Church, and fellow economist Bird says his religion is associated with a deep integrity. "By being a good public servant there is the idea that he's serving his God," Bird says.
With annual inflation running at 4% and the pace of economic growth picking up, Australia's official interest rates are set to go higher as early as tomorrow morning. Longer term, Stevens will very likely face a recession at some stage in his 7 year term.
UPDATE 3/8: Citing a strengthening in demand and output, capacity constraints, a tight labour market conditions and rising inflation, the RBA raised rates by 25 bp to 6.0%. The press statement concludes:
Overall the Board's assessment, based on the gradual increase in underlying inflation this year, and the wider background of above-average global growth and strong domestic demand, was that underlying inflation in the period ahead was likely to exceed previous forecasts.
Given these circumstances, the Board judged that an increase in the cash rate was warranted in order to contain inflation in the medium term.
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