Daily Archives: October 18, 2012

AUS is 2nd, 12th or 18th globally

Depending on what measure is used Australia is going great guns economically right now. But like what the article said its more important to use a variety of other measures to accurately describe the performance of the country.  For me the greater need is to ensure that the fruits of the country’s economic success is shared with the rest of society in an eligatarian way as what Australians best describe their country.

Sizing up the economy: Are we as good as we think?

18 October 2012 Tom Conley

Treasurer Wayne Swan recently noted that Australia now has the world’s 12th-largest economy. This suggests it has moved up three places during Labor’s period of office, and regained the three places it had lost during the Howard government’s tenure.

Swan boasted that:

“In the past five years, Australia’s economy has surpassed the economies of South Korea, Mexico and Spain. Our economy has grown around 11% since the end of 2007, while the US has grown only around 1.75%. Many European countries are still substantially smaller due to the massive recessions they have suffered. Inhabiting a place among the top dozen largest economies on the planet is particularly impressive when you consider that we rank 51st in terms of population.”

Swan is right: this is a remarkable outcome. But it must be noted that one of the reasons we’ve improved our ranking is because of the appreciation of the Australian dollar against the US dollar. In 2007 the Australian dollar averaged 83.9 US cents, compared to a 2012 average of 103.4 cents.

If economies are measured by converting the domestic currency value of GDP to US dollars, when a country’s currency appreciates against the USD, the economy “increases” in size as well, and vice versa. When the Australian dollar fell to around 50 cents in the early 2000s, the Australian economy was relatively much “smaller” in size.

If the Australian dollar were to fall substantially over coming years, other factors remaining equal, the “size” of our economy would also decrease. This US dollar exchange measurement, therefore, is an unsatisfactory way to measure the real size of economies, let alone wealth or development.

An alternative way of measuring the size of economies is by using a concept calledpurchasing power parity (PPP). A PPP index provides a way to convert national accounts to a common currency – called Geary-Khamis or international dollars – adjusting GDP to reflect different costs of living and production.

As most travellers and international investors know, the costs of goods, services and production vary considerably across countries. The most widely known use of PPP is The Economist’s Big Mac Index, as well as the lesser-known iPod Index. Both, however, are oversimplifications of PPP.

If we consider the top 20 countries on PPP and USD terms, we get vastly different results. Using IMF data, I have ranked countries on their 2012 “results”.

In 2012, China is half the size of the United States on a USD basis, compared to more than three-quarters measured by PPP. On the latter measure, the IMF estimates China to overtake the United States by 2017, but on USD terms it would still only be two-thirds the size.

India has passed Japan in 2012 to become the world’s third largest economy on PPP terms, although if Indian GDP is converted to US dollars it carries less than half the weight of Japan’s GDP and is only 10th overall, just two places above Australia.

Australia is only 18th on PPP terms, just behind Iran and six places worse than if judged by Swan’s preferred choice of measure.

Recently, Secretary to the Treasury Martin Parkinson argued that Australia now has a smaller economy than Indonesia, but this is only true if measured via PPP. It still has a smaller economy than Australia’s on a USD exchange (2.2% of the total compared to Indonesia’s 1.3%).

Based on current projections, Indonesia will have a slightly larger economy than Australia’s in 2017. These measurements and projections will change as the Australian dollar and the Indonesian rupiah appreciate or depreciate against the US dollar in coming years.

As economies develop, the costs of living and production increase, making even PPP comparisons problematic at best and inaccurate at worst. The World Bank recalculates PPP indexes via the International Comparison Program.

It suits Wayne Swan to use the USD exchange measurement – 12th sounds much better than 18th – and it suits Parkinson to use PPP to make his points that emerging economies are now a much more important part of the global economy, and that Indonesia might leave us behind if we don’t improve our productivity and tax system.

What this all means is that we should take measures of economic weight as indicative rather than absolute, and that future projections should carry the same warning as investment products; “past performance is no guarantee of future results”.

Economic “progress” is another thing entirely, and we need to consider measures such as GDP per capita, human development, and environmental sustainability to get a more accurate picture of what is going on.

For GDP per capita, the distinction between the two methodologies is significant, with Australia ranking 6th on a USD exchange basis and 15th on a PPP basis in 2011.

On the Human Development Index, which includes a range of variables including life expectancy, literacy, education and GDP per capita, Australia ranks second behind Norway, while China came 101st, Indonesia 124th and India 134th.

Improvements in productivity – the efficiency of labour and capital – and an egalitarian distribution of the fruits of that productivity are what matters in the long-term. Getting our policy-makers and the wider population to realise that the two are not contradictory is the short-term challenge.

Tom Conley is a senior lecturer, School of Government and International Relations, at Griffith University.

This article first appeared at The Conversation.

Attractive enough to be notice by Australian investors

The latest UBS report says a lot of the substantial improvement of the Philippines from an economic standpoint.  I hope Australian business will get to notice its significant performance to become a significant investor in the country.

PH economy seen to remain most promising in SEA

Inquirer Business

October 18, 2012 | Thursday

 

The Philippines is expected to remain the most promising economy in Southeast Asia as the country performs better than the regional average, according to UBS Securities.

 

The financial services firm said in a new report that the Association of Southeast Asian Nations appeared to operate in a “different dynamic” as efforts to build a single economy progressed.

 

However, UBS noted that the Asean remained economically diverse—both in terms of size and level of development—even as it represented a population of some 600 million and a gross domestic product that was three-fifths that of Germany.

 

“Of the larger economies, we think the Philippines will continue to prove to be the most surprisingly impressive,” UBS said, citing analysis from economist Edward Teather.

 

The “Philippines, which recorded (a GDP growth rate of) 5.9 percent (in the first semester), is clearly surpassing the 10-year average growth rate,” it added.

 

With regard to the so-called Asean-5—the original and biggest economies in the group, including Indonesia, the Philippines, Malaysia, Thailand and Singapore—UBS said access to local capital markets was not difficult.

 

“We expect the Philippines and Indonesia to record a relatively healthy GDP growth in the context of the last decade,” UBS said.

 

“That context is important, because global and Asian growth is expected to be more modest in the coming years than before the global financial crisis,” it added.

 

Earlier this year, UBS said the Philippine economy might grow by 4.5 percent in 2012 considering that investment inflows to the country were indeed improving.

 

However,  Teather said the improvement had not reached a point that good times ahead were ensured.

 

Back then, Teather said “favorable developments” and “clearer evidence of strengthening investment” were needed to be seen lest the apparent improvement turns into disappointment.

 

“Manila has been the place to be in early 2012,” he said. “The Philippine equity market has outperformed its peers.”

 

The benefits of the NBN to AUS small business

Expect the NBN to boost Australian small business by offering it the capability of fast broadband for its business needs. At the moment, this is a luxury available to big business who have the resources for this. It will be a huge market opportunity for Philippine BPOs and IT developers to start developing ways of helping them realise this benefit.

The National Broadband Network isn’t just about faster web surfing; it’s about new ways to do business.

The first major phase of Australia’s NBN rollout is set to pass through roughly a third of Australian homes and businesses in the next three years, across both metropolitan and regional Australia. Over the next decade the NBN aims to reach 93% of premises with its optical fibre network, offering up to 100 megabit-per-second download speeds. The remaining 7% of premises will receive access to 12 Mbps connections via satellite or fixed wireless, with the wireless deployment already underway in regional Western Australia.

You’re not obligated to sign up for the NBN when it passes your doorstep, but if you don’t you might be forced to pay a connection fee later. The plan is to eventually phase out Australia’s copper and cable networks, moving all voice, internet and pay TV traffic across to the NBN. A change of federal government might see a change in the NBN design, but the project won’t be abandoned and there’s a pledge not to rip existing fibre out of the ground.

Ignoring the NBN when it reaches your business would seem like a missed opportunity, especially considering that early NBN plans are on par with what you’d currently pay for a copper or cable connection. But the NBN isn’t just about loading webpages faster, it’s about making it practical for Australian businesses to enjoy access to a whole range of new services. It will also offer more Australian businesses the chance to become service providers, doing business with the rest of the country and the rest of the world.

One area in which businesses will see immediate benefits from the NBN is access to new communication and collaboration tools. The improved upload and download speeds of the NBN will allow businesses to take advantage of business-grade VOIP (voice over internet) services, cutting communications bills and offering the flexibility of a business-grade PABX switchboard hosted in the cloud. It will be a far cry from the current situation where the quality of your internet connection is highly dependent on your distance from the local telephone exchange and the quality of your phone line.

Voice is only the tip of the iceberg. The NBN will also make it practical for businesses of all sizes to use high-definition video conferencing tools to collaborate with colleagues or meet with clients and suppliers. This will allow businesses to make decisions faster and be more nimble, while cutting down on travel costs and ensuring staff spend their time more productively.

The NBN isn’t just about getting more from your staff; it can also help you offer them an improved work/life balance. The ability for staff to work away from the office or even at home, via the NBN, will help Australian businesses adopt flexible work policies designed to retain skilled staff. The NBN will also make it easier for such a dispersed workforce to work together using the new generation of online collaboration and project management tools, letting them edit documents and work on projects as if they were sitting side-by-side.

Once you remove the barriers of distance, all sorts of opportunities will open up for Australian businesses. The NBN won’t just make it easier for businesses to move large files. It will also make it easier for them to bid for international projects and participate in “follow the sun” business models which shift development and support work across time zones during the day.

Backed by the NBN, you’ll be able to tap into new markets.

That’s just a quick list of the benefits which the NBN can offer small businesses. Any one of these benefits could completely change the way you do business, but the true strength of the NBN is that you’ll be able to enjoy all of them at once thanks to the fast fibre connection running to your door.

When the NBN rolls down your street, stop to think about how it might revolutionise the way you do business.

(Disclaimer: Neither David Hancock nor his business Geeks2U has a commercial interest in the NBN Co. or are contracted at this time to work for the NBN project.)

David Hancock is the founder and managing director of national on-site computer repair and support company, Geeks2U. Founded in 2005 and with a team now over 300 strong, Geeks2U is one of the biggest Australian businesses of its kind.

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