business spectator by kohler

Not sure if this has been posted already....


By Alan Kohler

The sharemarket is now telling us that an Australian recession is around the corner.

Markets are not always right, but having sliced through the March 2008 lows today like a hot knife through butter, with not a flutter of resistance, there can be no doubting the message.

The bear market lives; the economy is in trouble. That is also clear from the statistics.

Today’s performance of services index from Australian Industry Group and the Commonwealth Bank was truly dreadful, falling heavily for the second time in three months to its lowest level for years.

CBA economist, Michael Blythe commented that higher interest rates, rising oil prices and falling business confidence are weighing heavily on the economy and more than offsetting the positive factors at work.

Which are? Er, the commodities boom. And increasingly the question is being asked: can commodity prices and export volumes survive the combination of a long credit bear market and an oil shock?

And even if the terms of trade boom continues unabated because Chinese demand for iron ore and other raw materials continues unabated for a few years, can eastern Australia avoid a recession anyway?

Even the apparently strong statistics don’t bear close examination. On Wednesday, May retail sales came out, showing a rise of 0.7 per cent against market expectations of 0.1 per cent.

But retail sales have been falling for four months before that and are now just 0.6 per cent above December 2007 levels. With retail inflation running at more than 0.2 per cent a month, sales volumes are falling – people are buying less stuff, it just costs more.

Also, Tuesday was the performance of manufacturing index which, like the services index today, was consistent with quite severe contraction.

The Australian economy is very precarious. Given the high level of household debt, confidence, spending and activity are extremely vulnerable to any increase in unemployment.

But what would an Australian recession during a commodities and terms of trade boom look like? Assuming it is possible, such an event would fall very unequally indeed around the country.

If employment and incomes remained high in WA and Queensland, the distress on the east coast – where all the adjustment would have to be borne - would be immense.

Today’s sharemarket performance is ringing a very loud warning bell for the nation’s political leaders: get ready to send your budgets deeply into deficit next year, deliberately, and then to fight for your jobs...


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An interesting read, and the dynamics of Australia do pose a different situation to any previous downturns over the years with Resources and W.A / part of QLD practically holding Australia up still.... who know's where we'd be with out them.... Regularly travelling to perth its easy to see all the money over there.....

Unfortunately I don't see any reason for things to get better or prove this article wrong.... not until at least nearer Xmas that there could be a change and upturn.....