In the spirit of the great Douglas Adams' Trilogy of 4 books on the Life, the Universe and Everything, this is now Part 3 of 2. It could easily be much more, but this was intended to be a first level break down of our trade performance only. Unfortunately I couldn't find 42 as the answer for anything in this 3 Part appraisal.
This final part wraps up with current trend growth rates including GDP. As a result of 2 recent online video clips (highly recommended viewing; being the Munk Debate Japan vs USA and the Kyle Bass Redux) I am slowly joining the dots on what seems to matter in the broader sense of national account trends. The biggest 2 points of difference I see between Japan and the USA (at least so far) are (a) the population pyramids (demographic trends) and (b) natural resources. I plan on getting around to some in depth analysis on both Japan and the USA at some stage, but have focused on Australia in these series.
So it is with thanks to these recent insights, that I see population growth rates as equally important to economic analysis as anything else. This is probably due in part to the PPP (purchasing power parity) used in FX valuation models when reducing of many key economic indicators to per for capita comparison. As a non-economist, being a self taught hack the importance of many seemingly relevant yet inquisitive tangents crystallizes after the fact.
(nominal, current $AUD, periods as noted)
AUSTRALIA'S GDP TREND
Presently, nominal current $ GDP growth is running at 8.2% YoY down from 8.5% the previous quarter. Deduct CPI for approximate real GDP growth as the balance. While this number looks supremely healthy, there is a good argument to be made that is has to remain so in order to maintain the present status quo. A real GDP growth limit of around 2% has been set via general consensus of US analysts that is the threshold of sustained positive impacts (above 2%) and sustained negative impacts (below 2%) on unemployment.
The linear regressions of the nominal GDP growth rates indicate a long term slowing down of growth. This is certainly in line with current uncertainty in the global arena, and supports this being Phase 2 of Australia's progress of development from an Emerging Market. The addition of the population growth is considered important. It highlights any deterioration in GDP/cap - a measure of standard of living. Essentially if GDP growth drops below the population growth, it can provides a signal for economic contraction. In simple terms, local conditions would then be dependent on the corresponding movement in the overall money supply as to the prices and available credit. The reductions in GDP growth also correlate with larger trends in the US and Japan.
The numbers on this for Japan would be intriguing, given it is forecasting a reduction in forward population. In Japan's case, if the reduction in population rate exceeds the reduction in GDP, it is still seen as a sign of prosperity per capita, however money supply and other capital flow factors beyond the scope of this author would be of higher consideration. However there remains something in the PPP FX calculation that is causing the ongoing appreciation of the YEN - perhaps the rate of reduction of $economic $indicators is occuring at a slower pace than the rate of decline in the Japanese population? (a guess).
TECHNICAL ASSESSMENT - of rates of change, poly and linear
Without delving into the many and varied valid reasons behind the use of non-linear (polynomial) and linear regression curve fitting, the following are the results of relatively mild 3rd order polynomial versus linear regression analysis of each of the 7 trade data sets using the Jan1998 to Sep2011 data range (23years). While the choice of range is arbitrary (can be more 'local', as in a shorter time series using less data), I have done this using the full range of available data that I have access to from the ABS.
LINEAR REGRESSION OF TRADE TRENDS
NON-LINEAR POLY REGRESSION OF TRADE TRENDS
The charts above are a warning that any likely regression to the linear mean results in a negative trade balance. Numeric representation of the above charts is provided in the summary table below.
Tracking with the nominal GDP growth at 8% should be a reasonable target average for non-linear curve fit. Should GDP not sustain 8% it stands to reason what the ensuing result for the trade balance will be.
Since I included the net-trade BOT G&S less merchandise calculation, I realised the non-merchandise BOT might be a warning. It shows the worst deficit trading non-merchandise has ever been, and is 3x (a 200% increase) on the previous 20 years worst performance. I have not the means to identify the composition of this net deficit. Thanks again for the trade surplus due to our resources and primary industries!
Our present handling of our surplus trade categories is not a positive sign for the future prosperity of Australia in any extent where we depend on a sustained surplus for our standard of living being derived in the current manor. In time, I hope to dig deeper to see which are our greatest rates from change with respect to shrinking surpluses, and expanding deficits.
That's enough for now I think.
Part 1 Part 2
Regards,
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