This apparently was “the dilemma of Davos” according to Martin Wolf in the FT (reproduced in The Oz today):

The world’s economy is in excellent shape, but its politics is disturbing. This contrast was a focus of last week’s annual meeting of the World Economic Forum in Davos. The question is whether and how this divergence might end.

The facts seem clear: the world economy is in a golden period of broadly shared growth, high profits, modest real and nominal interest rates and low prices for risk. It has, on its way, adjusted with some ease to a series of shocks: the stock market crash after 2000; the terrorist outrages of September 11, 2001; wars in Afghanistan and Iraq; friction over US policies; a jump in real oil prices to levels not seen since the 1970s; the cessation of negotiations in the Doha round; and the confrontation over Iran’s nuclear ambitions. It has coped, as significantly, with China’s and India’s economic resurgence.

Could economics overwhelm politics?

One of the stories of our era is the way in which vast countries such as China and India are orienting their politics around the goal of prosperity. This forces them to seek domestic and global stability and accept international openness and mutual dependence. They see no benefit in international conflict. It is surely possible that this view of national priorities will take hold in more of the world, including the Middle East.

The US Fed overnight did nothing to disturb the economic niceness, keeping US interest rates on hold. Wall St. moved up sharply overnight on the news, as the Fed answered two of Wall Street’s major concerns – their statement said that the economy remains healthy and that inflation pressures are easing.

Australia is the truly lucky country. Our economy is “nice” while our politics is far behind global best practice in nastiness. The latest data maintain the form.

The Federal Department of Employment and Workplace Relations’ skilled vacancies index rose by 1.4% in January, and is up 7% through the year – indicating that demand for skilled labour remains high despite the three-pronged impacts of the drought, higher interest rates and slowing domestic demand.

Also, HIA data found that sales of new homes increased by 6% across the country at the end of last year, surely a positive result given the impacts of the rate hikes. However, HIA chief economist Harley Dale said that there is some distance to go before the housing market gets back on track: “It is encouraging to have seen a stabilisation in new home sales over the second half of last year, but it is going to be a long road back to a sustained recovery for new housing,” he said – full story here.

Read more at Henry Thornton.

Peter Fray

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