May 2002
Statement on Monetary Policy
Box A: Comparing the Recent Economic
Performance of Australia and the US
Economic conditions in Australia and the
US have diverged markedly over the past
couple of years. The US economy
experienced a sharp slowdown in 2001 –
with year-ended growth in GDP declining
from around 5 per cent in mid 2000 to
1
/ 2 per cent in December 2001 – before
beginning to recover towards the end of the
year (Graph A1). In Australia, economic
growth slowed in the second half of 2000,
with year-ended growth in GDP reaching a
trough of 11/2 per cent in the December
quarter 2000, before rebounding strongly to
over 4 per cent by the end of 2001. Much of
the slowdown in Australia reflected the large
swing in dwelling investment associated with
the changes to the tax system in the middle
of 2000 – excluding dwelling investment,
year-ended growth in output only declined
to 21/2 per cent.
This disparity in the growth rates of the
two economies is reflected in the labour
market, where employment has increased by
nearly 2 per cent in the year to the March
quarter in Australia, while over the same
period it has declined by around 1 per cent
in the US. The index of consumer sentiment
in Australia has been much stronger than
similar indices in the US. In part reflecting
the differing levels of resource utilisation,
underlying inflation has picked up in
Australia over the past couple of years to be
just under 3 per cent, while in the US the
CPI (excluding food and energy) has
remained steady through this period and is
currently a little under 2 1 / 2 per cent
(Graph A2).
The divergence of the two economic
cycles, in part, reflects a number of
Graph A1
Graph A2
Activity and Employment
Prices and Profits
Year-ended percentage change
%
%
%
GDP
%
Consumer price index
Year-ended percentage change
3
3
US
(excluding food and energy)
4
4
2
2
Australia
Australia
2
2
1
(weighted median excluding GST)
1
US
Index
%
2
Index
Net corporate profits*
%
Employment
March quarter 1997 = 100
120
120
100
100
80
80
2
0
0
60
-2
-2
2000
2001
Sources: ABS; Thomson Financial Datastream
4
2002
60
1997
1998
1999
2000
2001
2002
* Per cent of GDP
Sources: ABS; BEA; RBA; Thomson Financial Datastream
Reserve Bank of Australia Bulletin
imbalances in the US economy, particularly
relating to the corporate sector, that are not
present in the Australian economy. Over
2001, corporate profits in the US declined
by over 6 per cent but, over the same period,
grew robustly in Australia. Consequently, the
profit share in the US has declined in the
past two years to be well below its long-run
average, whereas in Australia the profit share
has remained relatively constant around its
historical average.
May 2002
This contrast between the corporate
sectors in the two countries has been
reflected in their share markets. The
Australian share market reached an historical
high in March 2002 and has risen by
8 per cent over the past two years. It is
currently only 4 per cent below its peak.
Since reaching its peak in March 2000, the
US share market has fallen by around
30 per cent. R
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