Is Australia facing the first recession in 20 years?

[VYBerlinaV8]

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.

A big +1 from me. My builder who is renovating our new house told me this week that he is getting about 10 calls a week from people he has dealt with in the past looking for work, as there is nothing around. Once our renovation is done, he has no further work.

At my work, we took a decision last week to stop taking on new work, as we can barely service our current workload. We have clients literally throwing money at us, and we recruit anyone who can help do the work (for VERY good remuneration). Despite this, the work comes in more quickly than the new staff can be found.

It's a strange time, that's for sure.

 

[Player]

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.

As I said, it's always different, however 15 odd years of living high on the hog, there needs to be some "economic restructuring" as you mention below. Homeostasis needs to return to the markets. As for no over-borrowing, perhaps in terms of the US we are mere amateurs here, however it wasn't long ago that equity maaate was flavour of the day. The rise and rise of asset prices has been on the back of borrowing largesse IMO.

WRT no asset price bubble, well the smart money (I exclude myself in this) were major sellers in 2006/2007. I am not catastrophising here, however our non-high inflationary environment could be the calm before the storm.

I've mentioned for some time, I smell 1991 in the air with sideways asset prices for the most part outside of some mining regionals and, I could be seen as intense in my description. I did however live in Victoria in those days and it was the worst state in Australia at that time when it was the industrial engine room of the nation for many years prior. Victoria had the lowest emplyment growth and some spectacular financial collapses.

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.

Whether we are in a technical or sentimental recession, the people outside of mining employment are doing it just a little bit hard. It feels a little deflationary to me and whilst that may see the need to drop cash rates to stimulate things, I also wonder whether we see a situation of inflation (in non-discretionary goods/services) that causes deflationary inflation. I cannot source the post by Sunfish who explained this situation well some time back, however if he reads this thread hopefully he may elaborate a little.

My schooner is always more than half full, however I am pessimistic in the short term. The opportunities to purchase well in major capital centres will arrive soon. Whilst we are in different economic (and certainly demographic) times to the 1990's, it hurts not to remember the past and what we can learn from it.

 

[Player]

100% lvr loans in run up to 2008.

Watch for them next credit cycle.

It's taken me more than a few birthdays and a couple of cycles to learn my lesson, however I can't wait till the banks start throwing money at all and sundry (anyone who has a pulse) again. I, too, shall be a seller several years into that cycle.

 

[Aaron Sice]

i think this is a sentiment thread. its too early to tell otherwise.

personally, i dont think so, because WA investment is skyrocketing at present. it will muddy the figures from the east coast, so the overall picture may not tell the average story.

 

[Indifference]

Australian GDP is swayed greatly by the global economy, as we are a resources & primary producer economy. If the world slows, our exports slow considerably & GDP hurts as a result. Look around the planet..... the global economy is suffering badly.

In the EU, many countries are already in a recession. Have a look at this interactive graphic...

http://graphics.thomsonreuters.com/12/04/EZ_RECCMP0412_SB.html

The BRICS are working hard to avoid contagion by establishing new trading agreements that don't involve the US dollar. The US is the grand master of statistical manipulation & anyone with 1/2 a brain can see through the mathematical wizardry.... just look into the US employment stats if you doubt this.

Being optimistic, I believe a downturn is in order over the next 12months, which may dovetail into a recession thereafter if contagion from the rest of the world spreads to our shores.

I believe a depression is coming to many countries within the next 3-5 years..... a couple are already knocking on the door. Australia should fare far better than most though.

 

[Belbo]

Well, my vote is on moderate growth over the next 12 months, somewhere close to the 3.25% of GDP that 'The Sunshine Gang' are forecasting (you know, the hopeless romantics at the top of Treasury, the RBA, the Government, the IMF, the non-Murdoch media, etc).

Of course, you don't see this option on the thread's poll. Not alarmist enough, I expect. All be it in the camp of the modestly sane.

 

[Deltaberry]

The key would be on resources consumption in China, India, Japan and South Korea.

I have no doubt that most other major sectors - retail and hospitality, tourism, logistics, aviation etc - are already in a mild downturn.

If you speak with most downstream users of coal/iron ore/base metals, the feedback is actually pretty mixed. I have major end users in these countries (think the equivalent of OneSteel or Bluescope in these countries) telling me they're quietly pessimistic about things.

Only saving grace is the most important country of this lot - China - is not democratic, so the Government can make hard decisions and take drastic measures and doesn't act like the shambles government that Greece has just become overnight. And India + Japan have pretty hardline governments too.

 

[hobo-jo]

personally, i dont think so, because WA investment is skyrocketing at present. it will muddy the figures from the east coast, so the overall picture may not tell the average story.

So do you think the investment in WA/mining will be enough to keep the whole country out of recession?

Some interesting charts on MacroBusiness this morning (showing poor health in manufacturing, services & construction):

http://www.macrobusiness.com.au/2012/05/aigs-black-hat-trick/

But H&H points out the same thing (that the downturn is likely east coast based).

Of course, you don't see this option on the thread's poll. Not alarmist enough, I expect. All be it in the camp of the modestly sane.

Steady as she goes = steady/moderate growth.

I thought that was pretty well implied by the ladder of options.

 

[Belbo]

Or inversely, China's authoritarian government knows just one thing for certain: The moment it stops delivering economic growth will be the moment it is swept aside by a democratic uprising.

 

[Deltaberry]

Haha that's not true.

China had not delivered growth for a long time before 1985. Mao probably had a firmer grip on the country than any political leader of this generation.

With growth comes knowledge and TV and media and internet. Not necessarily a good thing for maintaining control over the people.

 

[Aaron Sice]

see blue...

So do you think the investment in WA/mining will be enough to keep the whole country out of recession?

maybe technically, but not across the board. i don't think melbo's will feel the effect like i am here. like i said, the average story will be very different to what the average stats say.

Some interesting charts on MacroBusiness this morning (showing poor health in manufacturing, services & construction):

http://www.macrobusiness.com.au/2012/05/aigs-black-hat-trick/

But H&H points out the same thing (that the downturn is likely east coast based).

even manufacturing here is pretty poor - i mean, just scraping by, spent the last few years living on borrowed time kind-of-poor. services in WA are okay, retail sucks but entertainment doing well and construction is just ticking along nicely - great balance now, actually - good service, good prices.

 

[Ausprop]

"retail sucks "

anyone got any data to support this generally accepted assertion?

http://www.smh.com.au/business/signs-of-life-in-the-retail-sector-20120507-1y8ds.html


http://www.smh.com.au/business/business-battles-longterm-memory-loss-20120430-1xu57.html

 

[Crabnet]

"retail sucks "

anyone got any data to support this generally accepted assertion?

http://www.smh.com.au/business/signs-of-life-in-the-retail-sector-20120507-1y8ds.html


http://www.smh.com.au/business/business-battles-longterm-memory-loss-20120430-1xu57.html

The anecdotal information has been supported by recent profit results of some publicly listed companies. Harvey Norman, JB Hifi, Woolworths included.
Obviously people are still spending but some retailers are being squeezed by price deflation of the goods they sell, rising costs and competition from overseas stores.
Anyhow there are a lot of vacant B&M shops in my area and they are staying vacant for a long time. That must mean something.

 

[Ausprop]

The anecdotal information has been supported by recent profit results of some publicly listed companies. Harvey Norman, JB Hifi, Woolworths included.
Obviously people are still spending but some retailers are being squeezed by price deflation of the goods they sell, rising costs and competition from overseas stores.
Anyhow there are a lot of vacant B&M shops in my area and they are staying vacant for a long time. That must mean something.

anecdotal being the key - would be interesting to see quantity not price. price deflation doesn't have a cure, particularly when energy costs are going (and soon even more so) thru the roof. I think we all have enough power guzzlers now. As Pascoe says, the world changes. His point being that rather than a problem we have with the economy, we just have a change in the economy.

 

[Ausprop]

I find it really bizzare that a third of people on here think we are heading for a recession and one person is completely depressed !

 

[HotRod]

We sort of sailed through the GFC, thanks to a war chest the previous Lib government built up.

With the amount of room the RBA (3.75% and down) has to move and the range they want to keep inflation in (2 to 3%, currently 1.6%) there is still plenty of wriggle room.

Some serious **** would need to go down for Oz to go into recession.

 

[BayView]

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?


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.

Mate, it's been here for the last 18 months. Just has been carefully hidden from the media and the normal folk...

Still a bit of low-level retail goin' on, but it's all been nickel and dime stuff, a lot of on-line stuff and Ebay, which kills local retail and voila!

 

[Crabnet]

Re First Fleet,
There seems to ba a back story,

"Stephen Brown used to give each of his staff a ham at Christmas. He was a knockabout bloke, a generous boss who insiders say was always willing to put a hand in his pocket to help a friend in need.

But in the wake of his company's collapse this week - leaving hundreds out of work and out of pocket - new details have emerged of a troubled man wrestling to keep his family together and struggling to keep a gambling addiction at bay.

Most alarming are questions as to how the 1st Fleet boss used money from the company to fund his gambling. One insider said his company credit card was regularly used to withdraw cash at The Star, where he poured thousands of dollars into the pokies. He was a regular feature of the high rollers area at the casino, known as the Sovereign Room.

This is not necessarily why 1st Fleet collapsed this week. It was seized by administrators ultimately because its backers, a large French finance company, had made a strategic decision to exit Australia, and an eleventh-hour attempt to sell the logistics firm to a private equity firm failed.

But neither do such large transport companies collapse overnight. Brown's loose salary arrangements and failed attempts by his confidants to stop him gambling suggest entrenched problems with the way the business was managed."
Continues here.
http://www.thecourier.com.au/news/national/national/general/high-roller-at-the-helm-of-troubled-truck-firm/2545540.aspx?storypage=0

 

[Belbo]

Re First Fleet,
There seems to ba a back story,
Continues here.
http://www.thecourier.com.au/news/national/national/general/high-roller-at-the-helm-of-troubled-truck-firm/2545540.aspx?storypage=0

When the story broke on the TV news I immediately turned to my wife and said, "That managing director is acting strange. The trucking company has just been ripped out from under him by it's lender. His logical options are to be either furious - because he didn't see it coming and thinks he could have stopped it - or crestfallen - because he did see it coming and knew he couldn't stop it. But this bloke isn't either. Instead, he's hanging out with the staff in front of the TV cameras saying he is just bewildered and doesn't know why the lender has done this. That tells me he's the one who has just ripped out all the available cash and so forced the lender to act, and what he's doing now is trying to cover his trail by acting all innocent in plain sight." I swear. That's what I said.

 

[Graemsay]

I've got a friend who lives in Adelaide who reckons that the economy is slowing rapidly. Similarly, another in Melbourne has been mentioning the recession word a few times in recent months. It sounds like banking and retail are having a hard time there.

That said, I was swapping emails with an IT contractor in Sydney a week or two back. Things sound buoyant in that market, unlike in the UK where it's currently completely dead.

I don't know what's going to happen next. I wouldn't be surprised if there's a recession, but that's not the end of the world. Though there would probably be four or five slow years as the economy recovers.

I'd agree with the comments that the Australian government is in a good position, but households are much more stretched, and banks are vulnerable due to their dependence on foreign capital.