11 May 2012 – Tony Crabb, national head of research for Savills, taps into regular six weekly meetings with the Reserve Bank, and recently with demographer Bernard Salt and Paul Keating for some of his insights.
A key feature of the economy right now, said Crabb, speaking at the Property Funds Association conference at Sanctuary Cove on the Gold Coast last week, is the trailing impact of the trillions of dollars of debt racked up by the world’s leading western economies.
To illustrate the scale of this, he said: “A trillion dollars in seconds takes you back to the Stone Age.”
In other words this gluttony of debt from the GFC was never going to be easily digested.
The European scenario had yet to play out and the chances are that there would be “another European blip”.
This was not directly relevant to Australia.
What is relevant to Australia is China, Crabb said. “China will be the driver of our economy for the rest of our life.
“Luckily Europe doesn’t matter to us. What matters is we a sit on a third of the world’s resources.
“We’re a giant mine. But we should make sure we charge enough royalties so we don’t end up like Nauru.”
Australia was currently in the process of a major transition tied with the rise of China and the resources it needs.
“What we’ve been through,” Crabb said, “is not an oil shock… it’s far deeper than that.
On one side miners were “making money all over the place. We’ve transitioned the economy to do that.”
But other parts of the economy were shifting as well and it was not all bad news.
“The headlines read that there were 700 people sacked in banking. But that’s a drop in the ocean. Finance and insurance, for instance, grew by 40,00 jobs in the 12 months to November 2011.
“In healthcare there have been another 40,000 jobs added.”
Not everyone can make the switch, though. “People who work in retail don’t readily transition to mining or finance jobs.”
Another big factor impacting on the economy but not so often mentioned in headlines was a huge recent surge in immigration, followed by a sudden recent slump.
“That’s the reason it feels like a recession,” Crabb said.
The way immigration is measured can vary, but in one recent year Australia had added nearly 400,000 measured by people entering the country for at least a year, such as students, he said.
[According to the Australian Bureau of Statistics ) There were 277,300 migrants to Australia in 2008 and 313,000 to 2009. ]
Regardless of length of stay such big influxes of people brought a major burst in demand for households goods such as beds, wardrobes, appliances …and houses.
“Harvey Norman of course goes through the roof.” And now retailers complained because there were fewer people around to buy.
“And of course the housing industry goes into decline.”
Immigration is now starting to lift again, but we won’t feel that until next year, Crabb said.
A recent federal government announcement said there would be 5000 skilled migrant places added to the total immigration quota for 2012-13 of 190,000 people.
Looking longer term, it was China, predicted in 30 years to be twice the size of the US economy, that will be the major influence on the Australian economy, not just because of resources.
Many Chinese who make money will start to turn their eye to Australia as a good place to invest, particularly in property, says Crabb.
“So buy property and stay with it for a long period of time and in the long term you will make a truckload of money – just by being so close to China.
It might help to stop putting in US bases and turning back boat people. It doesn’t give quite the right impression, he said.