Is Australia facing the first recession in 20 years?

[hobo-jo]

12 months ago I started this thread with a poll: http://somersoft.com/forums/showthread.php?t=71363

Will be interesting to see if sentiment has changed via the poll I have included.

A technical recession is 2 quarters of negative GDP growth.

When I started the last thread I was expecting Australia to be in recession within the next 12 months (maybe I'll be wrong, but I still have time )...

The next GDP release from ABS (Q1 2012) is due 6th June. Q4 2011 came in at +0.4% change (seasonally adjusted), substantial drop from +1.0% in Q3 2011, so if we see another similar drop into Q1 2012 and Q2 remains negative then we may already be in recession or if Q1 remains slightly positive or flat then we might get a negative print in Q2 2012 the start of the recession if negative growth continues in Q3 2012.

http://www.abs.gov.au/ausstats/[email protected]/mf/5206.0

Have you changed your mind since voting in the last poll (mine has remained the same, expecting recession) and if so why/why not?

What might the flow on be for house prices? Will the RBA rate cuts be enough to keep the market buoyed? What might the flow on be for rent prices?

It was a MacroBusiness thread which kicked off the reminder...

Is Australia heading for recession?

Two things happened yesterday that suggest to me that the Australian economy could be headed for recession. The first was the collapse of the First Fleet trucking company and the second was the release of the Australian Industry Group’s Performance of Service Index (PSI) which slumped 7.4 points. Houses and Holes covered it well in his piece here yesterday which he title “Something just snapped in the economy”.

Wasn't a convincing piece by itself with most of the article based around the insolvency of a single company, however the past/present comparison was interesting as were many of the user comments with anecdotal and further evidence of a slowing economy.

 

[Belbo]

What do you want to go trying to scare property investors for now, Hobo Jo? Have they sinned against renters by investing in houses, or are you just hoping they'll sell up and tip everything they've got into bullion? The only threat of recession I see is people talking themselves into one by listening to crazy crackers like Steve Keen and his Macrobusiness blog buddies.

 

[hobo-jo]

What do you want to go trying to scare property investors for

Wouldn't savvy property investors look on the hard times as an opportune time to buy more property at fire sale prices? What's to be scared of?

I take it you don't think a recession is likely (or even possible)?

 

[Sylvester]

If we enter a recession it will only be temporary Hobo.

All we have to do is bring forward borrowings from tomorrow's productivity to spend our way out of recession, and into ever greater productivity. It's a failsafe positive feedback system, even when productivity is not increased adequately to cover interest. Keynes said so.

The only thing that can jeopardize a recovery is negative talk that scares people into not taking on higher debt to buy assets, because they are afraid not enough other people will take on higher debt to support asset prices.

Banks who attach lower values to asset prices this year than last, have absolutely nothing to do with starting or ending recessions.

 

[Sunfish]

You're new here Sylvester and may not understand that many here read literally.

Welcome, BTW.

 

[hobo-jo]

All we have to do is bring forward borrowings from tomorrow's productivity to spend our way out of recession

There are two entities who could use this method to achieve the outcome.

The government, who (on state and federal level) is engaged in a campaign to return the budget to a surplus from a deficit.

The people, who are currently returning to a higher rate of savings and aren't borrowing nearly as much as in times past.

Of course either of these could have a turnaround given the right motivation in 6-12 months, but the question wasn't whether the recession will be ongoing forever, it was whether we will have one in the first place...

http://www.macrobusiness.com.au/2012/04/private-credit-growth-flat-in-march/

The only thing that can jeopardize a recovery is negative talk that scares people into not taking on higher debt to buy assets

So the only thing keeping asset prices buoyed/moving higher is sentiment and ensuring more people continue to enter the market with increasingly larger loans to purchase them? Sounds like a ponzi scheme

I would like to see property return to being an asset where the rental return entices property investors, rather than the hope of capital gains.

 

[eternit]

Hi ho-bo-jo,

I am interested to know what is the minimum rental yield that would be appealing to you as a property investor?

Regards.

 

[Sylvester]

I would like to see property return to being an asset where the rental return entices property investors, rather than the hope of capital gains.

I think investors invest as a means to preserve capital value against inflation, especially asset price inflation. I doubt they understand they might have some causal role in asset price inflation.

Maybe we need to ban inflation, once we work out what causes it. Central banks seem to think it is loose credit, hence their focus on rates, and little else.

 

[Belbo]

I think investors invest as a means to preserve capital value against inflation, especially asset price inflation. I doubt they understand they might have some causal role in asset price inflation.

Maybe we need to ban inflation, once we work out what causes it. Central banks seem to think it is loose credit, hence their focus on rates, and little else.

It's nothing to do then with too much money chasing too few goods?

 

[Deltaberry]

A strange economy indeed.

Every day I hear of pilots, truck drivers, train drivers, people who fix computers at banks etc losing jobs. The world must seem like a recession for most of these people.

But just on Friday I went to a lunch where one of Australia's largest copper company's CEO was making a speech. They are now doing fly-in, fly-out direct from Melbourne to their mine site. Anyone who does enough domestic travel would've seen the ads at the airport for this company. And the CEO assured the audience that there's a significant shortage of people who are willing to do the work, and they are remunerated very well.

So it is interesting - lots of people who would otherwise not have jobs are making very good money. Yet there are some in the general community who are now falling behind in mortgage repayments.

My verdict is, I think we're heading towards a recession, and in part that is because MOST people who will soon be jobless in the big cities are lazy. But there'll still be opportunities to make $100k+ easy in this recession if you so much as applied.

 

[Belbo]

I've had an idea: Just abolish all forms of social welfare spending and let people use the tax savings to arm themselves to the teeth. And sell the TV rights!

 

[devo76]

I say slight downturn.we have been flat for some time but I feel a modest fall is coming and expected.But is it suprising no. Does it make property investing over the long term wrong. hell no.
Will it make the people desperately wanting a crash just to be right happy. Probably not.

 

[Player]

Interesting article to reflect.

http://www.theage.com.au/news/busin...1164777791623.html?page=fullpage#contentSwap4

Some would be too young to recall this or have lived through it as an adult and, whilst it is always different "this time," it doesn't hurt to have memories refreshed.

 

[matto_]

I have been going along on this premise for the last couple of months, waiting for the share market to drop, to get back in. It just seems to keep going up.

surely there has to be a pull back soon?

 

[boomtown]

From my vantage point mining in Qld seems to be slowing down a bit. It's not GFC style dead in the water but it's definitely slower than a year ago.

And if mining continues to slow then either the dollar needs to go back to 67 cents US like during the GFC or we are going to have some pain. I voted for a technical recession.

 

[Aaron_C]

Will it make the people desperately wanting a crash just to be right happy. Probably not.

Well they'd be out of a job, so no.

 

[oracle]

I have been going along on this premise for the last couple of months, waiting for the share market to drop, to get back in. It just seems to keep going up.

surely there has to be a pull back soon?

Me too...I have my eyes on a few companies but am staying patient, waiting for a pullback.

Cheers,
Oracle.

 

[Belbo]

Interesting article to reflect.

http://www.theage.com.au/news/busin...1164777791623.html?page=fullpage#contentSwap4

Some would be too young to recall this or have lived through it as an adult and, whilst it is always different "this time," it doesn't hurt to have memories refreshed.

What I find interesting is the complete absence today of any of the conditions Macfarlane points to in that article as proximate domestic causes of the early 90s Australian recession. No asset price bubble. No inflation. No businesses over-borrowing. No financial institutions over-lending. In fact, the only correspondence is that some overseas countries are in recession - and those countries (with the exception of Japan, which has been in recession for 25 odd years, so whatever) are no longer Australia's dominant markets.

There is a world of difference between the national economic set-back or loss of growth that is a recession, and the uncomfortable but evolutionarily necessary process of economic restructuring. This is what's happening to the domestic economy now. It's good old creative destruction. Those 600 trucks should be driving up the coast to service the mines as we speak. You're letting yourselves be sucker punched by an anti-PI scare campaign.

 

[Sylvester]

It's nothing to do then with too much money chasing too few goods?

You mean too few Mercedes, i-phones, etc?
Or too few properties?

Brisbane properties went up by 23% in the 12 mths to 31/1/08.
In the 12 mths to 31/8/11, they went down 6.7%.

The number of properties didn't go down in 2008, nor up significantly in 2011.
The population didn't go up a lot in 2008, nor down in 2011.

So must have been a change in money, or affordable credit money houses are usually bought with.
Or, maybe it was just a change in sentiment about what property prices might do in the future!

 

[boomtown]

100% lvr loans in run up to 2008.

Watch for them next credit cycle.