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|Is Australia's economy already heading south?|
|Sunday, 22 January 2012 23:26|
We will not know the official answer to this question for some time. But evidence from a suburban veterinary practice in Sydney suggests that the economy turned down in November 2011.
We never know for sure what is happening in the economy until well after the event. For example, Australia's National Accounts statistics, which provided estimates of GDP growth for the three months ending September 2011, were only published on 7 December 2011. And these figures are likely to be revised at the publication of the December quarter figures in March 2012. It is for this reason that economists are always in the hunt for "leading indicators" of what is happening.
In this context, Tony Westwood, a Sydney veterinarian, has for some time been analyzing trends in his own business against the national economy. As it happens, Tony's business tracks the Australian economy pretty well.
This is not surprising for several reasons. First, his suburban location is fairly typical of "middle Australia". Second, veterinary expenditures are very much a discretionary expenditure for his clients -- meaning that his clients' veterinary expenditures tend to depend on how many dollars they have in their pocket.
At this time of the year, Tony's clients usually seek two types of veterinary services. The first is related to clients who board their pets when they go on holidays and who then require pre-boarding vaccinations/check-ups or have post-boarding problems. Anecdotal evidence suggests that the economic climate may have discouraged Australians from going away on holidays, and consistent with this has been a drop in the demand for these veterinary services since November 2011.
The second type of service is normal treatments for sick or injured pets. As inhuman as it might seem, if you are out-of-job or out-of-pocket, sacrificing your pet's health may be an unavoidable cost-cutting measure. Again the evidence shows that spending on over-the-counter sales has also declined since November.
It goes without saying that interpreting evidence like suburban veterinary services must be done with great care. The weather can play a role, and Sydney has had an unseasonally cool summer which would have reduced many of the usual summer heat-related problems. Further, in Australia's patchwork economy, mining states like Western Australia and Queensland are doing much better than the rest of the nation, and Sydney may no longer be representative of the nation as a whole. And anecdotal evidence indicates that rural veterinary practices are experiencing increased turnovers as rural regions in New South Wales are experiencing their best economic conditions in a decade.
All that said, Tony's evidence does seem very much in tune with other leading indicators coming out. In other words, it seems clear that Australia's economy has indeed been heading south since November 2011.
What to do?
When the global financial crisis struck in late 2008, the Australian government acted decisively, and stimulated the economy. This, together with export demand from a strongly Chinese economy, enabled the Australian economy to sail through the crisis better than any other developed nation.
Today, the case for decisive action by the Australian government is even stronger. The Chinese economy is wobbling, and it is far from clear that we can rely on the dynamic dragon again. And as the past few years have seen a privileged few benefit from much of the benefits from our mining boom, the government has a moral responsibility to ease the suffering of "Australia's 99%" who are missing the prosperity boat and likely to be hard hit by the European sovereign debt crisis.