Is Australia facing an economic downturn/recession?

What outlook does our economy face over the short term?

  • TEOTWAWKI

    Votes: 6 3.1%
  • Depression

    Votes: 10 5.2%
  • Recession

    Votes: 42 21.8%
  • Slight Downturn

    Votes: 76 39.4%
  • Steady As She Goes

    Votes: 48 24.9%
  • Continue To Boom

    Votes: 11 5.7%

  • Total voters
    193
A lot of factors, events and data I've read about recently has led me to the belief that Australia is facing an economic slowdown that could be come quite severe and possibly (most likely in my opinion) lead to recession if we see the commodity boom cool off.

Mike Shedlock (MISH) recently covered some of the data we've seen that could lead one to that conclusion:
Near-Record Corporate Bankruptcies
Employment Drops Unexpectedly
Rise in Bad Home Loans
Record Low Property Transactions
http://globaleconomicanalysis.blogspot.com/2011/05/economic-bust-in-australianear-record.html

A lot of arguments for Australia's continued prosperity (both short term and long term) hinge on our ability to dig up and sell our resources. My fear is that this commodity boom is nearing an end.

200yearsofcommodityboom.gif


I believe the current surge in prices could be a direct result of the Fed increasing it's monetary base through asset purchases. If that is the case then we could face a huge collapse in prices if the Fed were to stop doing so (which one could argue is approaching, at least temporarily, with the end of QE2 in June):

Fed+Monetary+Base+vs+Commodities.png


The end of the commodities boom has the potential to devastate the Australian economy in an already weakened state.

That is my personal opinion. I thought we were heading into recession in 2008/2009 as well (so I have been wrong before, could always be wrong again!), but we managed to avoid it by pumping the economy full of government stimulus. We could see the same again, but if that were to happen we would be heading down the same path as the US and look where that got them!

So I'm interested in the thoughts of others.

How severe is the downturn we face (if infact you think we face one at all)?

Will we see recession? Depression? Just slower growth than normal?

Will the government intervene again given their stance now which is to restore fiscal responsibility? Will it be as successful a second time?

Is the commodities boom nearing an end and if so what does that mean for our short term prosperity and economy?

Am I overlooking positive data that is being overshadowed by this negative news of late?
 
I think we are almost certainly heading for a downturn. I would expect the June and then the Sep figures to show negative growth, and confirm that Australia is in a technical recession.

I think the commodities boom saving Australia is currently overhyped. If the rest of the world double dips, then China will slow. If China slows, then Australia is in for a hard landing.
 
I think hobo that people can find ways to justify their view, i could post a bunch of stuff which justifys my desires (asset prices/income to increase) and you can post stuff which justifys your view of recession/depression.

The link you post the author is bearish on the Australian economy and everything about it.

He says "Except for my economist friend Steve Keen, I have to ask: Has anyone down under learned anything from the property bust in the US?"

Yeah we have

* Lend responsibly
* no 130% LVR loans
* recourse lending
* Employ other safe guards (LMI loans over 80%)

Author talks about rise in bad homeloans increasing 11%
Doesn't mention off how low the base is tho, pretty convenient. I cbf finding the figures but from memory it was something like 0.2% are in arrears.

The facts are Australians have been conditioned to expect more rate rises through the media and hence fortifying the ship (high savings rates in anticipation of this) and holding off on large spending decisions. Once their is stability in I/R, people will spend more.


1.) i understand the implications china has on Australia
2.) i don't see oil @ $50 a barrel and iron ore back @ $30 a tonne

Regards,

RH
 
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I voted slight downturn. 1991 all over again. I think the mining boom may get us through.the US will improve eventually as will other countries.we just need to keep things ticking over until then. We still have plenty of ammo to keep firing.higher rates leaves us room to move if needed.
I'd say 5+ years of a so so property market are heading our way.
 
I voted for recession, i think we are already in it. However i dont think it will be anywhere near as severe as the recession Australia went through in the 1990's.
 
A

Am I overlooking positive data that is being overshadowed by this negative news of late?

On the positive:
Firstly i dont think commodities will crash, there is a structural change going on. And structural changes always take time to play through.

However there is plenty of room for commodities to come back, without 'crashing'. There will also be increases in commodity volume, so the net effect becomes more complicated, and add to this the AU$ (which will come down, but will cushion the net impact since commodities are priced in US$).

Secondly alot of the pain is being caused by a high AU$. The rise in the AU$ has been too rapid and the australian economy is not designed for this level of exchange rate.

Any reduction in commodity prices will see a fall in the AU$ which will help the non-resource sectors such as retail, education, tourism (Queensland is really bleading at the moment).

On the negative:
I think the wealth effect from house prices dropping is being understated. Most australians wealth is tied up in Superannuation and housing. A drop in housing prices will have a significant flow through effect to the rest of the economy. This will interlink with superannuation through the australian share market.

With the Greens controlling the balance in the senate in July this year, i think this will also be negative for australia. It will be difficult to implement proper long term economic policies that are required to lift australian productivity (this is not a liberal/labour thing, the labour government under hawke/keating implemented a lot of good microeconomic reform that has benefited australia over the last 20 years).
 
I think that the world financial system is about to undergo serious change with the US dollar losing its position as the worlds reserve currency. The US has destroyed its own dollar by getting into massive unpayable debt and counterfeiting as a backdoor default and is on the way out, so it all really depends on what replaces the dollar.

If the dollar is replaced by commodities etc selling in a basket of currencies or on a precious metal backed new currency, I think we should be okay. Australia has huge mineral wealth, a lot of land, good food production capacity, a healthy intelligent population, significant capacity for education and is a highly desireable tourist destination, a fairly manageable national debt and one way or another we'll work it out.

I do however think (as stated a few times on this site) that Australia needs to reindustrialise so that we are less reliant on foreign powers for our economic survival. We have food, land, water etc and all of those fundamentals, with the only thing missing being a national manufacturing capacity sufficient to produce all of the goods that we as a nation require, and soak up any excess labour that would otherwise be underutilised while the rest of the world finds their feet. Having aussies who want to work, who need to work, sitting idle because certain foreign nations don't want to buy our stuff is utterly stupid in my opinion.

A really good example is that of Singapore - every time the world changes over there, the government very actively trains workers in whatever skillset required for them to keep on working, so that the workforce is versatile, adaptive, and productive. The opposite is happening here - we have people with skills that just arent in demand sitting on the sidelines because there aren't jobs for them, and rather than train them up/create domestic industry to soak up those skills, we pay them the dole while we wait for other countries to demand their skills so that they can work again.

It's short sighted, passive, fatalistic, utterly ridiculous and massively against our national interest. For the "clever country", we sure are doing some seriously dumb stuff.
 
I think that the world financial system is about to undergo serious change with the US dollar losing its position as the worlds reserve currency. The US has destroyed its own dollar by getting into massive unpayable debt and counterfeiting as a backdoor default and is on the way out, so it all really depends on what replaces the dollar.

.

The US currency could well weaken further, but it will be many years before it looses its 'reserve currency' status.

One very good historical indication, never in the history of mandkind, has the reserve currency not been tied to the world dominant military might, and the US is still leagues ahead in this.

US debt for the most part is in US$ so they have plenty of control over it.

Don't let those wacky D&G articles interfere with investment logic.
 
The US currency could well weaken further, but it will be many years before it looses its 'reserve currency' status.

One very good historical indication, never in the history of mandkind, has the reserve currency not been tied to the world dominant military might, and the US is still leagues ahead in this.

US debt for the most part is in US$ so they have plenty of control over it.

Don't let those wacky D&G articles interfere with investment logic.

"Could"? It will definitely weaken further. That genius Bernanke said outright that counterfeiti ahem "quantitative easing" will continue for the foreseeable future, and moves are being made like the Chinese and Russians selling to one another in Rubles and Yuan rather than US dollars. These massive commodity prices are based on US dollar weakness, not commodity strength, and it's getting more pronounced.

Also, I wouldn't bee too sure about the US being the worlds leading military power anymore. Sure they have bases all over the place and a lot of high tech weaponry, but they don't have the productive capacity to win a major war, especially if that war involves China - what are you going to do, buy weapons off your enemy? The US has been starting and losing wars left and right - Afghanistan is a nightmare, Iraq is the same, Libya is a disaster already and it's only a month old, they're picking a fight with Pakistan, and they're also trying deperately to pick a fight with Iran, which prompted Russia and China together to intervene on the side of Iran - and between Russias similarly advanced weaponry, China's penchant for technology theft, Russias excellent military and China's million man army plus productive capacity, the US isn't winning anything anytime soon against those guys without nuclear weapons - and if it goes down that path, property prices are going to be the last thing on your mind while half the world burns in a nuclear fire, glows in the dark and Australia jumps into the ring on the side of the US.

Empire America is done. Not this year or the next, but definitely over. The Japanese almost melted the dollar down by wanting to sell their treasury bonds to finance reconstruction following Fukishima Daichii, and they're only one of several countries holding a similar amount of debt (or more).

Interesting times we live in. I wish it weren't so.
 
I voted slight downturn. 1991 all over again. I think the mining boom may get us through.the US will improve eventually as will other countries.we just need to keep things ticking over until then. We still have plenty of ammo to keep firing.higher rates leaves us room to move if needed.
I'd say 5+ years of a so so property market are heading our way.

+1. Saved me some typing.
 
Hobo,
Great info!

My thoughts.
Australia is linked to the strength of commodities.
Overall commodity pricing will continue to be solid. (why outlined below)

Negative Drivers for Australia
Forex issues will continue to dampen profits for Australian producers
BDI indicates softening of consumption.

Why would commodity pricing not slip?

IMO the extend and pretend scenario will continue to play out, the fed will continue to print money.
This is for a number of reasons and the presidential elections amongst them.
Commodities gain / stay solid with the additional money printing and history, even recently shows us typically where the money flows.
Stagflation knocking at the door next, but that's another discussion.
L
 
thank you for sharing such a good graph. It seems that we 'd better off wait until the real estate bubble price popped (crash) and then we can buy as many IP as we can.
 
There's a clear link between high commodities and WAR!

Obviously, wars destroy commodities so their price goes up but there is more than a little of high commodities/food causing conflicts too.

Is Hobo's chart telling us to prepare for war? Food IS becoming expensive in the poorer nations. (Is here too, but we can still feed ourselves)
 
.....

Is Hobo's chart telling us to prepare for war? Food IS becoming expensive in the poorer nations. (Is here too, but we can still feed ourselves)

Hm.. interestingly yes, somehow I feel that the food price is also increasing so far, I guess it is because of the Libyan crisis which pushes the Oil price to more than USD $100 per barrel ?
 
I think too many people are just looking at movements in commodity prices as representing fundamental demand/supply and are ignoring the impact of speculation on price movments.

Lets wait and see what happens on prices the speculative eliment is reduced.

As the for US$, if its not the reserve currency, then why does it go up, when global risk increases.
 
I voted for recession, i think we are already in it. However i dont think it will be anywhere near as severe as the recession Australia went through in the 1990's.

I'd say we would be in a recession but for the resources sector propping us up.

hobo-jo said:
My fear is that this commodity boom is nearing an end.

It's a good post hobo-jo and a thought provoking thread. But, with reference to China, how do you see the commodities boom ending? I understand China's growth is expected to slow, however without a complete stall in their economy they should still be requiring our exports.
 
I think that the world financial system is about to undergo serious change with the US dollar losing its position as the worlds reserve currency. The US has destroyed its own dollar by getting into massive unpayable debt and counterfeiting as a backdoor default and is on the way out, so it all really depends on what replaces the dollar.

If the dollar is replaced by commodities etc selling in a basket of currencies or on a precious metal backed new currency, I think we should be okay. Australia has huge mineral wealth, a lot of land, good food production capacity, a healthy intelligent population, significant capacity for education and is a highly desireable tourist destination, a fairly manageable national debt and one way or another we'll work it out.

You have been listening to alex jones to much or other NWO people
 
It's a good post hobo-jo and a thought provoking thread. But, with reference to China, how do you see the commodities boom ending? I understand China's growth is expected to slow, however without a complete stall in their economy they should still be requiring our exports.

No doubt everybody almost expect China will continue to require our resource in their goal to become a world super power.

However, very few truly understand and are aware of their massive level of mal-investments funded by huge level of debt to bring all these amazing growth rate. There are quite a number of articles out there detailing the myth that China has plenty of $$$ tied up in their foreign reserves and that their economy is not that heavily leveraged and should not, and will never, undergo a credit bust just like the rest of the developed world has seen.

There are already tons of roads and bridges built there that leads to nowhere. Then we have these so called empty cities, almost vacant shopping malls and commercial office buildings with police preventing any foreigners, or anyone, that attempt to take photos.

The trillion dollar question is whether the Chinese central government can "engineer" a soft slow down. Given their peanut actions taken to cool things down, and with rampage inflation, I don't have a lot of confidence that they will be able to do it. A hard landing is almost inevitable sooner or later. There is no country EVER in the history of mankind go through a structural boom with no cyclic bust along the way.

Beside, what they are going to do with all these resources they are buying from us when they already have over-capacity infrastructures? Like storing copper and tin in pig farm houses for speculation? :D (yes, they are doing that)

With how leveraged the Australian economy is tied to China, any significant slow down will hurts us massively. But I wouldn't give a timing on this just yet.
 
As the for US$, if its not the reserve currency, then why does it go up, when global risk increases.
Demand for USD increases as speculators deleverage and pay down loans?

I suspect there is no one answer.

The US Dollar is still flocked to when risk increases, but the question is where else would one park their money? Interestingly in early 2010 when we saw the Euro & risk assets sell off and the USD rise, we had Gold rise with it...

But, with reference to China, how do you see the commodities boom ending? I understand China's growth is expected to slow, however without a complete stall in their economy they should still be requiring our exports.
I wonder how much they have already stock piled... I don't doubt over the longer term they will continue to need our resources, but we could easily see demand drop off short term. Problem with China as I see it is the lack of reliable data we have to work from, seems every day another analyst is giving us a different story:

April 18th and Iron Ore is falling in price due to slowing demand
http://www.businessspectator.com.au...w-China-steel-dema-G2BB2?opendocument&src=rss
That comes 3 days after this article on Iron Ore demand being unreported:
http://www.steeltimesint.com/news/view/chinas-iron-ore-demand-under-estimated/statistics/

What is one to believe?

There is speculation China has already heavily overbuilt (residential housing/entire cities, etc), so we may see a slow down in demand as these imbalances correct... [edit: I see temjin has covered this in more detail above]
 
There is speculation China has already heavily overbuilt (residential housing/entire cities, etc), so we may see a slow down in demand as these imbalances correct... [edit: I see temjin has covered this in more detail above]

Here is some words from Clinton dines (Aussie dude who was former head of BHP China, he has been living in china since 1970's) to reflect on.

Chinese housing bust: “Unadulterated Frog*****!”
– Dines expressed very strong disagreement with
the views expressed last year by “Mr. Short Seller”
Jim Chanos. Apart from that immense rising tide of
affluence, some key points were:

(a) Chinese housing prices had been growing for
many years at 9% per annum, but income
growth has been 10% per annum.

(b) Chinese home buyers typically put down a
35–40% deposit and to the chagrin of the banks,
pay it back quickly in 5–7 years. Credit card
penetration is very low, many have debit cards!!!

He accepted some parts of some cities were
overbuilt, but clearly regarded these instances as
simply flies on the elephant – “look at the elephant,
not the ticks and flies...”


Hey hobo what did you think about the differences i've posted on the US home lending and Aus home lending, i've posted them into two of your threads and neither gets a response... i must be on ignore or something :p
 
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