Australia: 40% chance of recession? Try 95%

This is the absurd thinking of economists. Australia has a 40% chance of recession next year. What does that even mean? If you asked me, I would say the chances of recession in Australia are 100%. You have a slowing property market, financial sector turmoil, a falling currency, plunging commodity prices and a global credit crunch. How do Australian economists figure Australia is going to be immune to this? Was this not the thinking in the U.s. just 4or 5 months ago?

Australia’s economy will slow sharply in 2009 but is not expected to contract, before growth rebounds in the following year, a survey shows.

The survey of forecasts of the 14-member Australian Business Economists executive committee found business and dwelling investment would ebb next year, resulting in a median gross domestic product (GDP) growth rate of 1%.

That would be down from an estimated 2.3% in calendar 2008, and come ahead of an uptick to 2.2% in 2010.

“Despite the weaker prognosis in 2009, annual average GDP growth was not forecasted by any committee member to contract in 2009,” the ABE survey said.

Asked what chance the economy had of going into recession, members settled on a relatively high 40%.

It’s this type of forecasting that leaves most people underwhelmed by economists.

Source Economists sees 40% chance of recession – Sydney Morning Herald


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Originally published at Credit Writedowns and reproduced here with the author’s permission.

10 Responses to "Australia: 40% chance of recession? Try 95%"

  1. Adriatic   December 10, 2008 at 12:26 pm

    I have spend some time living there recently…I think the above reflect their self serving propecy of “lucky country” and never ever anything going wrong with Australia….and this is how media and politicians have conditioned populations for many years….their property prices are totaly out of reason (worst then UK) and they still beilive that prices cannot go down because they have strong demand and shortage of supply…I am not Economist but using the same logic Ferrari should start ramping production!

  2. Mark from Sydney   December 10, 2008 at 11:04 pm

    Time will tell but I am quietly confident that the Australian economy will fair better than most developed economies. Unfortunately, the US is a basket case and will remain that way as they are completely uncompetitive globally especially with the US currency rising. 350 million is far too large a population to get away with competition against wages the likes of China, India, Russia, Brazil and others. No recovery for the US ever – only a slow decline unfortunately and caused by the globalisation that their own companies sold their own fellow country men out to – for their own profits.

  3. r0tiNeK   December 10, 2008 at 11:08 pm

    I am an Australian, born & bred : )Unfortunately we have slightly higher Household Debt to Disposable income ratios than the US. Commodity prices have fallen significantly and our resource boom is going to cool down alot in 2009. We will have depreciation in real estate, but I don’t think it will be as severe as the US.America’s sub-prime loans made up approx. 15% of their total mortgage pool.In Australia our “low-doc loans” (sub-prime equivilent) make up approx. 3% of the total mortgage pool. BIG difference.We also do not have the over-supply of housing and commerical real-estate that the US does (we need MORE residential housing to be built).My personal prediction is 10 – 12% depreciation across the board for Australian real estate. I don’t think we’ll hit America’s 20%

  4. Anonymous   December 11, 2008 at 1:45 am

    How low can the A$ go? This seems a key cushion against falling property prices – and helps to keep the economy stable, and perhaps the growth is therefore a bit illusionary. However, longer term the commodity base just has to be a big advantage for a relatively small population base. I have my investor visa pending.

  5. Dominic   December 12, 2008 at 3:08 am

    An hypothetical catastrophic scenario…In case of total failure of the world economy and financial system, Australia and Canada are among the few countries (maybe the only ones) that can self sustain themselves.Abundance of natural resources (they have the highest per capita natural resource endowment in the planet) that would be precious currency and could be traded with the less fortunate nations, immense territories that allows food independence for their small populations…Australia has the advantage of a warm climate that doesn’t require a lot of energy for heating.Because of this, basically every Australian and Canadian has a big life insurance in case the house of cards comes down.An autarchy heaven…they could literally living off the land…not a fancy life but still…..America with his 300 million people can’t do that….never mind Europe…The problem would be keeping the hordes out…In an “end of the world” situation I would rather be in Australia than in US or Europe.

  6. RED   December 12, 2008 at 7:59 am

    I’m Australian although I have worked and lived in the USA and Europe. Australia has unique characteristics that truly make it the “lucky” country.- low population to carve up the export income from large hard and soft commodity exports- abundance of natural resources- net energy exporter- net food exporter- net importer of manufactured goods- Government has no debt and with a AAA rating can borrow and spend to see through a 2-3 year global downturn- Very well regulated financial system, not controlled by the investment banks- four banks are AA rated, that four of only 15 in the world. For a population of 20m, that is truly amazing- Robust, high quality investment enviroment- Quality companies that compete on a global scale, to name a few BHP, CSL, Cochlear, Rio Tinto, Woodside, Macquarie Bank, Brambles, Amcor, and many more- High property prices, but then again, who wouldn’t want to live here???Any significant fall in markets in Australia, is quite simply the buying opportunity of a lifetime

    • Gustav   December 12, 2008 at 1:47 pm

      I have found this; in my opinion, very interesting article on Canada which almost completely applies to Australia. I understand the point RED is rying to bring but he is fogreting things like high living costs, relative uncompetitivness in internal markets as most key sectors are dominated by few large players, water issue, infrastructure costs burden on small population etc. Namely Australia/Canada should not forget the Dutch disease phenomana – an economic concept that explain the apparent relationship between the exploitation of natural resources and a decline in the manufacturing sector combined with moral fallout. The theory is that an increase in revenues from natural resources will deindustrialise a nation’s economy by raising the exchange rate, which makes the manufacturing sector less competitive and public services entangled with business interests. OK here is the article:—No country can base its fortunes on resources whose price goes up and down like a yo-yo because of factors independent from the will of its own government. Canada is not just a container like Costco, a company that sells everything but produces nothing. Our country is about the hundreds of companies that manufacture the products showcased on Costco’s shelves. The energy sector is too volatile to be the backbone of the economy of a nation that wants to belong to elite groups of industrialized countries such as the G8 and G20. Canada is a great country but to foster these aspirations we can’t become parasites sucking up blood from our soil. We need to exploit the ingenuity of our people.Energy should be considered a kind of insurance for rainy days, not the daily breadwinner. Yes, the history of this country is also about the richness of our resources, but it is mainly about trade and manufacturing everywhere, from coast to coast. Unfortunately, it looks lately as though we are not able to produce anything that can combine good quality and a suitable price. That’s not the reality; it’s just that we have not been able to master the necessary changes. And the results are especially evident in Ontario and Quebec.In 18 months, Ontario has lost 200,000 jobs just in manufacturing, 80 per cent of them related to small business. Why? We know the diagnosis. Premier Dalton McGuinty, in an interview last July, told me that “we can’t make brooms as cheaply as they can in other parts of the world. But if you want high-end goods, if you want high-value products and services ranging from ice wine to the BlackBerry, we can do that, and we’re really good at that stuff.” True, we can do it so, let’ss do it then.Until now, the federal government and Queen’s Park have been embroiled in a strange relationship where they were more concerned about politically fighting each other than about finding a solution.Canada and Ontario have everything needed to rebuild a sector, on different levels, that has been the backbone of our economy for more than a century.I often hear key words like “research,” “new technology,” “knowledge-based economy,” “skilled workers,” “infrastructure,” “ingenuity” and, most of all, “people willing to work.” It seems to me that Ontario is like a kitchen table with all the ingredients to make a gourmet meal; the only thing missing is a good chef. Well, there is a job opportunity for McGuinty and Harper, and I hope that both will take it. And the signals coming from the latter’s government are positive: Let’s cook it.By Angelo Persichilli – the political editor of Corriere Canadese.

      • RED   December 13, 2008 at 12:19 am

        Gustav,Australia will never be a manufacturing centre competitive with China, USA, Japan, etc, its too remote, shipping costs too high, high wages, not enough infrastructure, small domestic market cannot support economy of scale.What Australia has done is find areas that it is competitive on a global scale, as mentioned above, these include resources and energy but not limited to them. Australia also competes in industrial services, healthcare, biotech, education & research services, and many other areas.Take your point that you cannot sit back and let the iron ore and oil money roll in. High living costs are somewhat adjusted for with the floating exchange rate. Australia’s exchange rate hasn’t risen over time because we have a free market, when resources prices are high, consumer buy lots of stuff from the world, resulting in a balance of trade deficit. A full floating exchange rate would sort out many countries problems, Australia doesn’t have this issue.Cheers

  7. Anonymous   December 20, 2008 at 9:03 pm

    @dominicWouldn’t bet on Australia for a survivalist scenario. True there are no heating costs and lots of natural resources. But we’re the advanced economy most vulnerable to climate change because of our water shortage, poor farming soil (lots of land, but dependent on petroleum based fertilisers, basically a big hydroponics system), huge distances to transport goods. Natural resources and weak defense capability means we are a sitting duck for a more militaristic country to walk in and take us over in survivalist scenarios.

  8. Martinus Hardy   February 18, 2009 at 6:29 pm

    So far, I am agree of Kevin, but this Global crisis look to be at least 1 year plus and our saving been used and debt internal and external billion $.,If only one Year Vee shape, I am very happy for Kevin and Swan, and hoping opposition not stir up with politics, and hope would stick together to over come problem, not dinging our own grave, hoping I am not offencing any body, thank. Martin.