Tougher Times Ahead

[hypnodoc]

I found this on the internet news this afternoon (London Time). Given the governments inherent ability to tell people what they think they want to hear rather than the truth, you have to wonder how bad it really is. Obviously you can't listen to the self proclaimed experts because if they knew what they were on about we wouldn't be in this situation in the first place. A very tough few years ahead me thinks.

Budget 'buggered', recession looms

Print Siobhain Ryan | January 19, 2009

Article from: The Australian

AUSTRALIA will go into recession this year with a budget that's "buggered", forcing Canberra to choose between its infrastructure priorities and more populist middle-class welfare and industry bailouts.

Leading economic forecaster Access Economics warns in its quarterly Business Outlook, released today, that the nation's economic boom will "unwind scarily fast", halving corporate profits, costing more than 300,000 people their jobs and blowing out the current account deficit to more than $100 billion.

"Batten the hatches. This is not just a recession. This is the sharpest deceleration Australia's economy has ever seen," the report says.

Thanks to China's growth, Australia last year escaped the recessions that sent major economies such as the US and Britain into reverse.

The Government has consistently talked up the economy's prospects for 2009, citing Treasury forecasts of 2per cent growth in 2008-09.

But yesterday Wayne Swan acknowledged there was "no point gilding the lily in any way".

"The year ahead will be tough, and there's no quick fix," the Treasurer said.

The Access Economics report is the latest to challenge the Treasury forecasts for the Australian economy, released in November, before the full extent of China's slowdown became apparent.

In an interview with The Weekend Australian, Mr Swan conceded neither the budget nor the economy would meet the official published forecasts.

"China and other emerging economies, now caught up in this crisis, are expected to slow much more sharply than previously anticipated," he said yesterday.

Access Economics director Chris Richardson said Mr Swan would already have more updated, unpublished Treasury forecasts that exposed the extent of the problems facing his budget.

"The Government knows how ugly things are. None of this is a surprise to them," he said.

Access Economics said the federal budget was "buggered" because of its heavy reliance on company taxes and royalties - both of which would be hit hard by the collapse in commodity prices.

"The glory days of big budget surpluses are over, and the feds are now staring down the barrel of deficits as far as the eye can see," its outlook says.

The total public sector deficit - which combines federal, state and local government balances - is forecast to blow out to $10.5 billion this financial year, mostly due to Canberra's stimulus package.

But while Mr Swan may be able to rein in that deficit in 2009-10, the reprieve will be shortlived. Access Economics predicts that in the following year commodity price falls will exact a $22.8 billion toll from total government finances, which are dominated by the federal budget. The national fiscal deficit could blow out to $29.4billion in 2011-12. Such a shortfall could cripple the Government's capacity to deliver promised tax cuts, maintain programs, cushion the cost of its emissions trading scheme and fund infrastructure spending plans.

Access Economics warns that the Government and Opposition could "freeze in the headlights" as a result, choosing to shore up existing handouts to the middle class and to the car industry rather than making the politically difficult decision to cut them in favour of more worthy uses, such as building infrastructure.

Mr Swan yesterday repeated his assurance that the Government and Reserve Bank would take "every responsible step to strengthen the economy and protect jobs". But he has remained silent on how the Government will reprioritise spending in the event of a budget deficit.

The pressures on commonwealth coffers have intensified as states and territories have trimmed their spending to accommodate lower revenues. Access Economics says the two levels of government are working at cross-purposes, given Canberra's efforts to pump-prime the economy with multi-billion-dollar spending programs. "The states are failing those tests, tightening into the downturn, having spent up big during the upturn, making them part of the problem rather than part of the solution," it says.

Australia's current account, already in deficit, was also at risk of blowing out to record levels, forcing a change in the dollar's historic value, the report says.

Mr Richardson said freefalling commodity prices had stripped billions of dollars off the value of mining and farm exports, but had not dented demand for imports to the same extent. As a result, the current account deficit could top the $100 billion mark in 2009-10, dramatically up from $65 billion this financial year.

Edited 18/01/09 02:49 PM by hypnodoc

[typhoon_freak]

geez.. it is a bit worse then they make out to be..

[ronburgundy]

I did hear this morning expect another 1% rate drop in the next month or so.

Looks like, for those with a mortgage (and aren't on a fixed rate!), mods are becoming more affordable by the day!

It's quite funny though - I think I find a lot of these 'predictions' self-perpetuating. For example, when someone predicts/warns 'motorists to expect petrol prices to hit $1.60 next week' and then guess what - they do! I know that's all a bit conspiracy theory, but there's just so many of these predictions about doom and gloom and to the 'uneducated' (so to speak), it scares the pants out of them and thus the prediction is fulfilled; they start building a shelter in their basement and stockpiling canned goods and non-perishables.

[senna_T]

Its funny how much the mass media affects the economy, take my industry for example. Last year every second Headline was about Fuel Prices, Interest Rates or Plumetting Car Sales. We hadn't seen a worse climate since "the recession" I'm told. Over the last 6 weeks the fuel prices have come down, interest rates have dropped - and lo and behold we are selling cars again! I can guarantee you as soon as another fuel price rise happens we will lose sales traffic again.

[hypnodoc]

Hey Senna, I agree somewhat, but I'll tell you what I'm in the UK at the moment and was here in Dec and it doesn't seem to matter how much dosh the govt prints and throws at the economy it ain't getting any better Gordon Browne is at the stage where he is threatening to Nationalise the banks if they don't start lending money again, which is all well and good, but most of the banks have sailed up the yin yang and just havn't been forced to admit it yet. I have business partner here who in his own words could get up too 500,000 pounds from Barclays on the strength of a phone call, now he reckons he can't get 500 pounds from them and his assett value has dropped 30% since Nov last year. I have another friend in the US who was a very rich man until mid last year when his company Pro Elite went down the gurgler for (get this) 58 million US. the banks have a lot to answer for for creating this mess, but so do governments for not regulating them properly. One major problem Australia has is that it tends to follow the US and UK economies by about 3 months, and how many band aids can they keep putting on a severed artery. Still it brings people back to reality, its all happened before and it will all happen again no doubt. Anyway it's 10.20pm here in happy old London Town, time for me to get some ugly sleep.

Heres another Cheery little gem for Monday morning

Economist owns up: Australia faces "sharp, extended" recession in '09

Prominent Australian economist Ed Shann has broken the lazy quiet of the summer holidaze with a stark warning that Australia will not emerge from a mild slowdown by mid 2009, but will plunge into a sharp, extended recession, caused by one of the sharpest drops in national income in history.

Shan pointed out in the Jan. 12 Financial Review that the contracts to sell iron ore and coal to China are written in US dollars; therefore, the plunge in the Australian dollar in the last months of 2008 offset the collapse in export volumes to China in those months (26 per cent drop in iron ore exports in November alone).

Those contracts are renewed in April, and this time the decade-long trend whereby BHP and Rio Tinto have been able to extort annual price rises of 80+ per cent will be savagely reversed, and China is expected to halve what it is willing to pay, which will slash $30 billion off Australia's 2009 export income.

Shann stated this will translate into a 2.5 per cent drop in national income, a possible 30 per cent drop in export prices relative to import prices, and a fall in real income per capita of seven per cent.

This will drive unemployment up, and drive house prices down even faster.

Typically for an establishment economist, Shann's prognosis for a recovery is that we are entirely dependent upon a recovery in China.

Edited 18/01/09 10:18 PM by hypnodoc

[FPV TRANNY]

We seen the sh*t coming in our buisness over a year ago.We aint seen nothing yet!!!!!!

[harvyk]

I personally don't believe most of what experts sprout. Remember the experts saying we'd be paying well over $2 a litre for fuel by the end of 2008 and we'd be well and truely in double figure interest rates (getting onto 16 to 17%)? All it proves is the majority of them are able to predict the market at no better than a guess. Lets face it, if they where we'd all be millionaires.

A lot of what we are seeing is been egged on by the media. If you in an authoritive position tell someone something for long enough they will believe it to be true. Tell people that things are hunky dory, people will believe you, tell people that things are falling apart, they will believe that too.

It's almost a case of the media controlling the real world, rather than the media reporting on the real world.

[SubJimbo]

It's almost a case of the media controlling the real world, rather than the media reporting on the real world.

that's an excellent quote mate, I may have to steal it sometime!

Its all fuel for fear me thinks..

[turbotrana]

You have to "pick your experts". The only experts you can rely on are the ones who predicted most of what has happened months/years in advance. But not only predicted, explained exactly why.

Type in names like Peter Schiff, Max Keiser, Nouriel Roubini, Celente just to name a few out of dozens. They all saw it coming years ago and its documented. (alot of it on youtube)

So if they got past predictions right then you should be able to rely on their future analysis. Most of it is bad.

I watch most of the US news on Foxtel and most of the media didn't see it coming, so there is no point listening to alot of the rubbish they go on about. Some of the people (like the abovementioned) they have on are good though.

[ronburgundy]

Sunrise was on TV this morning as it usually is while I get ready - as I went to brush my teeth, they said "after the break, is the economy BUGGERED as some people are saying". Of course I laughed.

Then to sum up the story, world reknowned economist Larry Emdur went with "So in short, the economy is Buggered, but with only one exclamation mark, not two". That's some real deep stuff there from Larry! I think he was spending too much time hanging around with the Price is Right models (who can blame him?!) and they brought him down to their mental level!