Resources Recruitment - Department of State Development - The ...

the big picture�
The Global Scene
Renewed optimism on global economic recovery
The outlook on global economic recovery has noticeably improved in
recent months. Economic growth in the US economy is expected to lead to
renewed economic growth in Asia since the US is the largest market for
Asian exports. In the US and Western Europe, interest rates are currently
at record lows in an effort to strengthen economic growth.
As Chart 1 illustrates, global optimism has continued to drive equity
markets, triggering new 52 week highs for several markets across the
globe. Tokyo’s Topix reached a 16 month high in October 2003. This was
mirrored in the US where the Tech focused Nasdaq Composite was
recently at a 12 month high and the mainstream S&P 500 Index closed
marginally off its high point for the past year.
After successfully managing through the financial impact of the Severe
Acute Respiratory Syndrome (SARS) virus, Asia is regaining control over its
economic future. For instance, Singapore’s economy rebounded strongly in
the September quarter of 2003 on the back of a recovering global
economy. The Singapore government said in a recent statement that GDP
surged 15% in the September quarter on an annualised basis, marking
the fastest expansion on a quarterly basis since 1997.
In Europe, expectations about economic performance are improving
following the reduction in European Central Bank (ECB) interest rates and
recent increases in stock prices. However, the general pace of recovery
continues to be gradual.
Overall, global economic recovery appears to be well underway.
Forecasters expect the global economy to have grown 3.25% in 2003 and
4% in 2004. According to the Australian Bureau of Agricultural and
Resource Economics (ABARE), an assumed increase in world economic
growth in 2004 mainly reflects an expected strengthening in economic
growth in the United States and, to a lesser extent, in Western Europe. It
also reflects an assumed economic recovery in non-OECD Asia from the
disruptions of the SARS outbreak earlier in 2003.
Despite the optimism, there are a small number of analysts who are less
optimistic about global economic recovery, pointing out that the world
economy is too reliant on the US. The gap between the US and European
growth rates has widened, leaving the former as the main driver of the
global economy. This may prove to be an unhealthy situation if the US
rebounds strongly while other economies remain sluggish. This may see
America’s already massive current account deficit widening further.
Analysts point out that the world economy would be a lot healthier if
Europe and Japan took some strain off America by pursuing strong
reforms to boost their own growth.
United States
Follow my lead
The US economy has continued to show notable signs of improvement in
recent weeks. GDP growth was 7.2% in the third quarter of 2003. Recent
better than expected jobs data from the US in October 2003 renewed
hopes that the world’s largest economy is finally responding to low
interest rates and fiscal policy such as the huge tax cuts.
US based JP Morgan Chase and Co. estimates consumer spending grew
at 6.1% annual rate between February and August 2003, the fastest pace
in 16 years. Also, the S&P Retail index reached three-year highs in
October 2003. Trading was powered by robust September sales. This
has bolstered hopes that the US economy is indeed improving and that
the consumers still have an appetite to spend. This is encouraging for the
US economy as consumer spending may provide considerable support for
areas of the economy that have struggled in 2003.
26 Prospect December 2003–February 2004
Looking to the year ahead, there is continued optimism on the US economy in
2004. Economic growth is expected to continue at a steady pace supported
by low interest rates and high consumer spending. ABARE forecasts that
economic growth will be around 4% in 2004 up from 2.5% in 2003.
Japan
A genuine recovery or another false start for Japan?
Japan continues to show encouraging signs of an economic renaissance,
showing an impressive GDP growth of 2.2% over the past year that is
comparable to that of the United States. Data released recently also showed
an improvement in domestic conditions with increases in industrial production
and a rise in nominal wages.
Further evidence of an economic recovery was revealed at the East Asia
Economic Cooperation (APEC) summit in October 2003. The Minster of State
for Financial Services stated that the debt problem plaguing Japan over the
last decade was beginning to ease. For example, non-performing loans in the
Japanese banking system stood at 7.2% in October 2003 down from 8.1% in
April 2003.
Despite the positive outlook, some analysts remain cautious about economic
recovery in Japan. According to the International Monetary Fund (IMF),
Japan’s financial sector remains weak and is holding back prospects for a
sustained economic recovery. In addition, deflation continues to remain
entrenched in the Japanese economy.
Although Japan has a history for brief spurts of economic recovery, only to be
extinguished by policy mistakes, a genuine recovery will occur once the
banking system is rectified and deflation is defeated.
Non- Japan Asia
Non-Japan-Asian growth continues
Economic activity in East Asia continued to strengthen in the second half of
2003. The relatively quick passing of the SARS virus was accompanied by
rebounds in the retail sector and tourism sectors. According to the APEC
secretariat, the economic cost of the SARS epidemic was in the range of
0.5% to 1% of annual GDP growth for many of the economies in the APEC
region.
The Chinese economy continues to grow. Industrial production increased
16.5% over the nine months to September 2003. In recent times, China has
been the critical driver of demand in raw materials. Economic growth in China
is particularly significant for Western Australia as Chinese growth is focused
on the consumption of basic raw materials for infrastructure development
such as steel, iron ore, nickel, copper and aluminum.
After years in economic limbo, the Thai economy is also expanding at a rapid
pace. The latest economic data show that the production of manufactured
goods rose by 10% in July 2003. Private consumption continues to play a
major role in the economy with the private consumption index rising by 3.6%
year on year in July 2003.
There are also encouraging signs of recovery in Hong Kong and Taiwan with
the retail and tourism sectors in these countries showing noticeable signs of
recovery.
The economic outlook for the Republic of Korea has weakened in recent
months. Economic data show that industrial production decreased 0.3% in
July 2003 owing to a strike at the country’s largest car maker, Hyundai
Motors. Other factors that have weakened the Korean economy are high
consumer debt levels and new credit restrictions that have led to decreased
consumer spending and housing construction.
Overall, ABARE forecasts that economic growth will be around 3.3% in 2003
for the South East Asian region, before strengthening to 4.3% in 2004. This
compares with 4% in 2002.