Courtesy of Mish.
Australia suffered its worst GDP decline since the financial crisis in 2008. Economists expected a decline of 0.1% but Third Quarter GDP Declined 0.5%.
Trade data subtracted 0.2 percentage points and construction data released last week were much worse than expected. Business Investment was also weak.
Add to those concerns, a housing bubble that has been ready to pop for years, but hasn’t yet. Is now the time?
Australia last had a recession in 1991. Analysts think recessions can be avoided for something like forever.
Not Even Halfway
Financial review writer Phillip Baker says Australian Economy is Not Half Way to a Recession.
The economy may have gone backwards in the September quarter, but we’re not on the edge of a recession.
Economic expansions like the one Australia has enjoyed for so long don’t just die suddenly. They have to be killed off and at this stage it doesn’t look like that will happen.
An annual growth rate of 2.5 per cent is now much more likely as this year’s annual growth rate will probably come in at 2.3 per cent, again, lower than most economists had predicted at the start of 2016.
Perhaps the biggest worry from this latest report was the drop-off in consumer spending.
After all, it makes up more than half of total demand and is a key to the RBA’s growth forecasts.
Slow wage growth and slowing employment growth are to blame, but we need consumers to dip into their savings more to boost spending growth.
The other major concern was the drop-off in dwelling investments, which implies we can no longer rely on the housing market for growth.
The real issue however is what can be done about it from here?
RBA won’t be helping
The obvious reaction will be to call out for more interest rate cuts from the Reserve Bank, but in reality monetary policy is on its last legs.
To get the economy growing we need consumers to spend more. We need more investing from business and we need more jobs being created.
If there wasn’t so much public debt around there would be more pressure on the federal government to undertake spending on infrastructure.
Phillip Baker’s Alternate Universe
- Consumer spending down
- Housing down
- Employment slowing
- Wages slowing
- Central bank not in position to help
- Australian dollar tanking
- Too much public debt to increase federal spending
- Not even half way to recession
In the face of points 1-7 that Baker acknowledges, he still says “we’re not on the edge of a recession” on expectations consumers will spend more.
