Economic update: Sting in the tail: Gome

Gee. If I got my numbers so badly out as the Federal Government has done, I’d be sacked. Especially if I told my board that growth was going to be slower than expected barely two months after I had made some bullish predictions. I mean, we were in Canberra only two months ago duly scribbling down the Government’s budget economic forecasts and barely three months later, we get a very different set of numbers.

But then the commentators have let the Government off the hook by focussing on the big numbers and calling them a beautiful set of numbers. Really? It seems to me that unless you are a miner or servicing the mining sector then things aren’t that rosy.

Here are the main negative changes from the May Budget:

• Growth in GDP in 2010-11 is expected to fall from 3.25% to 3%. And then from 4% to 3.75% in 2011-12.
• Commodity prices are also expected to fall over the latter part of the forecast and through the medium-term.
• Household consumption is going to be weaker this year than forecast in the Budget with growth of 3% instead of 3.5%
• Dwelling investment is weaker at 5.5% rather than the buoyant 7.5% at Budget time.
• Inflation is going up at 2.75% instead of the forecasted 2.5%.

Now the Government might dismiss these as small adjustments from May, but added up it shows the government was either overly optimistic two months ago, has become more pessimistic or really does not have a collective finger on the pulse. Worse, it has also led to pundits suggesting there could be an interest rate rise in an election campaign – not just a nightmare for the incumbent government.
So all that made me a little gloomy, especially with the news flooding in that raises the spectre of a double dip recession in the US.

All of this has got pushed out of the way though with the news that the Budget will still return to surplus by 2012-13 with an increase in the surplus from $1 billion to $3 billion. Good news. And unemployment got left where it was, falling to 5% in 2010-11 and 4.75% in 2011-12. Business investment is also expected to pick up considerably in the second half of 2010, mainly due to engineering construction.

So what does all this mean for entrepreneurs? Well, we are more reliant on the mining boom than ever, yet commodity prices are set to fall. So go figure.

And secondly, don’t feel too badly if your Budget forecasts are out of whack already. The Government seems to get away with it.