By David Prattent

Marketwatch and his dear spouse have just returned from a short break in Singapore.  A fascinating place but, in common with other export-oriented countries, its economy is faltering.  World economic conditions, cooling demand and the US-China trade war are taking their toll everywhere it seems.

We have been chatting for a couple of months now about whether the Australian economy is in trouble.  I mean, why else would the Reserve Bank lower interest rates to levels not seen before.  I mean, at 0.75% the rate is less than the 3% seen during the Global Financial Crisis which nearly brought down the world economy.

So are we vulnerable?  It’s really hard to judge any economy by one measure but for some guidance Marketwatch turned to a newly-released piece of research from Harvard University called the Atlas of Economic Complexity.  This is a truly revealing piece of research and Marketwatch performed a simple comparison between Australia and Singapore.  Interestingly the far more diverse economy is to be found in Singapore which still boasts a depth in manufacturing which Australia cannot match.  As a result, the island state exports about $526bn of all kinds of stuff each year, of which 35% is technology and finance related while Australia exports about $328bn of goods of which 50% is resources-related and that does not include agriculture.  In terms of diversity, Australia is a relatively simple, less complex economy which means that in terms of potential to develop into other areas, it ranks pretty low on the international scale.  Very low, in fact.  In terms of ranking it comes in towards the bottom, after Senegal.  Singapore, on the other hand, is a complex economy with a very high potential for further expansion and diversification.

This is an important issue when, like the government and the Reserve Bank, you are faced with trying to stimulate demand.  There are basically two policy approaches; monetary policy, which is the activity undertaken by the Reserve Bank in terms of interest rates, and fiscal policy which is the role of government in public spending, tax policy and the like.

At the moment about half of our country’s business activity is at the point of, or is in, recession.  Everyone agrees our economy needs to grow faster but, because of our lack of diversity, the options are limited.  The RBA have now reduced interest rates to record lows without anything significant happening.  The hope is that we can get spending and employment going with this kind of stimulus, although why the economy of our medium-size open market would defy global gravity and move in the opposite direction is almost beyond comprehension.

The government is calling on businesses to invest, but why would you invest when the opportunities, including demand, are low?  Some in the media and politics are calling on the government to spend, but that spending needs to be on productive infrastructure such as airports, ports, bridges and the like.  But beware, the Japanese fell into the trap of inventing productive infrastructure such as bridges which didn’t actually have a road attached to them.  The Chinese had airports where planes didn’t land.  The federal government is understandably, and rightly, wary.

Jumpstarting the new housing market is one option because, if you include construction and all the associated businesses with it, that accounts for about 8% of the labour market.  Doesn’t sound much, but it’s a pretty significant number.  The downside is it will also cause an increase in debt, and there are already concerns about the ability to service debt despite the fact that interest levels are at emergency levels not seen for decades.

Much of the action causing this is not of our making; the US/China trade tensions and Middle East oil threats are but two examples.  Because of this it is possible we cannot put together much of a solution on our own.  Not very cheerful I’m afraid but probably realistic. The politicians will bicker and blame each other as usual. Leave them to it, they have not been of much use lately anyway.

This doesn’t mean that we stop doing things like investing, we just need to be ultra-careful.  If you are thinking of going into debt, do your sums and be brutally realistic with yourself.  Talk to a financial adviser.  I know, I know they have had a pretty bad time with Royal Commissions and the like, but there are still good ones out there.  But above all, don’t go it alone unless you are happy you have the knowledge and experience.

MarketWatch is not a great one for the romantic bit.  You chat to a lady about pork belly futures and oil price spikes, and if she seems interested you ask her to marry you.  Simple.  But he is impressed with the beauty of language, particularly that on French wine labels.  Chateauneuf du Pape, Pouilly-Fuissé, Chateau Haut-Brion, the names just roll off the tongue.  So, with some trepidation, he sat himself down to try a bottle of Shiraz from McLaren Vale.  Ominously it was called The Black Pig.  My goodness, what a surprise and pleasure, a truly delicious drop.  Highly recommended.  And a salutary lesson in the art of romance.

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