Pockets fill as slowdown looms
By Nassim Khade | smh.com.au | 31 May
Workers are getting hefty pay rises without sparking a wages inflation outbreak, but there are warnings that Australia's economy is at a turning point and that growth will dramatically slow over the next year.
Despite Reserve Bank concerns that wage rises could add to inflationary pressures, a report from the Melbourne Institute shows that wage inflation has been well behaved. Total pay over the past year rose 7.5% while basic hourly wage growth rose 3.9%.
The wages report showed that of 1200 respondents surveyed, 70% indicated a rise in pay over the past year and only 8% reported a fall.
A separate survey by the Australian Institute of Management shows annual salaries nationwide have risen by 4.7% in 2007-08, with lower pay rises in eastern states than in the resource-rich states.
NSW and the ACT recorded the lowest salary rise of 4.3%, followed by Victoria and Tasmania at 4.5%. Western Australia and Queensland had the highest salary increases at 6.4% and 5.7% respectively.
The wages data came as a leading economist warned that slowing growth resulting from higher interest rates would continue to hurt the eastern states more than the resource-rich states.
Speaking in Melbourne, at the Institute of Chartered Accountants business forum, ANZ deputy chief economist Tony Pearson said there was considerable concern about the effect of global developments on Australia.
"The world is in the midst of the most serious financial crisis since the Great Depression of the early 1930s, and global growth is expected to slow sharply in 2008," he said.
While coking coal prices, expected to triple, would deliver further massive income injections into Australia, "the Australian economy will slow over the next 12 months, because the policymakers want it to".
"Those states with a significant exposure to the mining industry will be protected to some extent from the domestic impact of higher interest rates. "
Economic activity would slow in Victoria in 2008-09 but Victoria would outperform NSW due to high population growth.
There are already strong signs the economy is slowing. Australian business inquiries for credit dropped considerably in the first three months of the year, according to Veda Advantage's business credit demand index.
Veda Advantage's analysis of its database of more than 5.5 million business credit files revealed the first quarter of this year recorded a 7% fall in business credit inquiries compared with the same period last year.
Veda Advantage chief executive Rory Matthews said declining credit inquiries were in line with economic trends in the commercial and consumer sectors and were likely to be influenced by the current economic downturn.
"March this year, in particular, saw a decline in business credit inquiries, which is the biggest monthly decrease in two years of business data we studied," he said.
"This may be a sign that Australian businesses don't want to overextend in a tough financial market."
First published by Smh.com.au on May 31 2008
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