Definitely a case of present indefinite and future tense

Well that didn’t last long. A tick up in the rate of world economic growth based on higher growth in the US and acceptable growth in China was providing the basis for optimism that the slightly sluggish economic growth rates of the past several years were over, including for Australia. Even economies of some parts of the EU have been doing OK.

The combination of recent growth figures for China, the impact of the government shutdown in the US and the uncertainties associated with Brexit (and not just for Britain but also for the EU) means that the consensus on the rate of world economic outlook is being rapidly scaled back.

On the face of it, growth in GDP of 6.6 per cent in China for 2018 doesn’t look too bad, although there is always doubt about the veracity of the figures that appear way too quickly to be reliable. But if we assume for a moment that China’s GDP figures are consistently inflated, there is still information in the changes in the rates of the growth.

The annual GDP growth based on the last quarter of 2018 came in at 6.4 per cent, in line with expectations. And let’s not forget that the Chinese economy is much bigger than it was a decade ago (it is now the second-largest economy in the world). Any figure with a 6 at the front is still very impressive, particularly given the demographic drag there associated with the lagged effect of the one-child policy.

So what does this all mean for Australia in terms of budgetary and monetary policy? The first thing is that China is a critical influence on the Australian economy. Any fall-off in the demand for our resources as well as lower Chinese investment in this country will have a significant impact on GDP growth here.

While a budget surplus might be in the bag for this financial year, the outlook for future budget cash balances will be highly dependent on the economic outlook assumptions contained in the budget, to be delivered this year in early April.

(There will be less up-to-date economic data for Treasury to use to land on the estimates and projections over the forward estimates, but that just might suit the government.)

And don’t forget that the opposition will be working off the same budget figures.

The chances that the Reserve Bank will lift the cash rate any time soon is now Buckley’s. If anything, the economic news of the past month or so points to a possible lowering of the cash rate from its historic low. It’s time for a few deep breaths.