28/04/2009

Okay so Treasurer Swan thinks that global recession is likely to be deeper and longer than previously thought.  But notice the word “global”.  Sure enough, Australia is directly affected by the economies of other countries, but the question is to what extent?

The global recession is taking its toll.  There is no doubt about that.  But we wanted to put our position into perspective by taking a closer look at what is happening around the world and how we are doing by comparison.

Japan’s economy, on an upward trend for several years, has been hit badly by the global credit crisis. As Tokyo stock prices posted its second largest drop on record, anxiety spread of a global recession.  As suggested by a paper released by IMF entitled “Why has Japan Been Hit So Hard by the Global Recession?” it looks like Japan will take years to dig its way out of the recession hole. 

What about the United States?  Well we all know what happened there - it’s still trying to cut itself free from crippled companies and wash away toxic debt in its banks.

And the United Kingdom’s got their finances so wrong, they may need to borrow £150 billion just to cover the hole in their budget.

In comparison, where do we stand and how likely is it to see a quicker recovery in Australia than the economic super powers?

Well, firstly the difference is in our attitude.  We Aussies tend to be a jolly bunch and don’t get let down so easily – as shown in a recent survey that revealed that amid the doom and gloom, a third of Australians thought that they would get a pay rise this year and only 15 per cent thought it was highly likely they would be sacked.

We are also big spenders when given free money!  OECD’s view of Australia’s Federal Government’s stimulus will boost growth by more than 1 percent this year which is about twice the impact of stimulus packages in other major nations.  John Edwards of HSBC says “the Reserve Bank is likely fairly confident that the most recent Australian Government cash payments will cause another bounce in retail sales for March”.

Australian investors are getting their confidence back with All Ordinaries share index rising by 7.1 per cent in March, which has been the strongest gain in 14 years.  Neither are Australian businesses afraid to invest with 18 per cent increase in capital goods imports from a year ago.

And from which ever angle you look at it, Australia is no where near the overseas property markets, where the investment boom has led to a substantial oversupply, and where the downturn will be sharp and protracted.  Australian residential property is, if anything, undersupplied and pointing to the overseas experience as an indicator of what will happen in Australia would not be helpful.

 
We’ve got some tough times ahead but the upshot is we have a lot of competitive advantage over other major countries and that is the good news stories for this month