Mark Lister, 18 July 2018

Australia has traditionally enjoyed a stronger economy than we have. It was one of the few places that avoided a recession during the GFC, and consequently hasn’t suffered an economic downturn since 1991.

However, for the last five years or so we’ve been posting consistently stronger growth numbers than our Trans-Tasman counterparts. Until recently, that is, because the Australian economy seems to have got the jump on us.

In the three months ending March 2018, our annual growth rate slowed to 2.7 per cent, the second lowest in four years. Meanwhile, the Australian economy exceeded expectations and grew by 3.1 per cent, the second highest since 2012.

That’s a bit of a change from recent years. In the 19 quarters before this one, we had a higher annual growth rate during 16 of them.

This resurgence has been reflected in the performance of the Australian sharemarket over the last few months as well.

In the three months to the end of June the ASX 200 index posted the strongest quarterly gain since early 2015, pushing the Australian sharemarket to the highest level in more than ten years.

However, it still has some way to go to make up for its post-2007 losses. Australian equities declined by a similar degree to others in the wake of the GFC, but despite the economy avoiding recession the recovery was much more subdued.

As a result, share prices across the ditch are still almost ten per cent below their 2007 peak. In stark contrast, New Zealand shares are more than 30 per cent higher and the US market is close to 80 per cent above those levels.

If we include dividend payments the returns look a whole lot better, putting the Australian ASX 200 almost 50 per cent above the 2007 high. However, applying that to New Zealand and US shares sees them both more than 120 per cent above those levels, which still leaves the lucky country in the dust.

New Zealand and Australia have some economic weaknesses in common, including an expensive, slowing housing market and very high household debt levels.

Last month nationwide Australian property values declined on an annual basis for the first time in six years. This will dent consumption and growth if it continues, as we saw in New Zealand when the Auckland market plateaued a year earlier.

Political uncertainty is an all too familiar issue for the Australian business community, and something that has reared its head locally in recent months too. Potential changes to industrial relations laws are a key worry for our businesses, while an inflexible labour market has been a weakness of the Australian economy for some time.

Both nations have a credible and independent central bank, a floating currency and interest rates that are above most developed countries, other than the US. However, New Zealand has lower government debt than Australia, not to mention a handy surplus that affords us more options.

China is the biggest export market for both countries, although Australia is more acutely exposed and our agricultural products would arguably be more resilient than iron ore and coal in a slowdown.

On balance, I still think we’re in better economic shape than Australia. However, the playing field might be looking a little more even from here on.


This article was also published in the New Zealand Herald under the title "Oz economy dabs the accelerator" on 26 June 2018.