By Rudi Filapek-Vandyck<\/p>\n
TD
\nWaterhouse Global Strategist Stephen Koukoulas has been the author of
\nsome of the most gloomy outlook reports on the Australian economy in
\nthe recent past. No wonder, TD Waterhouse is anticipating interest
\nrates will no longer go up and the next move will be down. Up would
\nonly exacerbate the trend that is increasingly becoming visible: a
\nsevere slow down for the Australian economy.<\/p>\n
This morning
\nKoukoulas sent around a report called “Reminiscing about
\nthe Early 1990s Recession”. No prizes for guessing the reasons behind
\nwhy Koukoulas decided to look back at his early carreer years at the
\nFederal Treasury. Similar to the lead into the 1991-1992 recession in
\nAustralia policy makers are once again dismissing forward looking
\nindicators that are pointing into the direction of economic hardships
\nahead.<\/p>\n
Spare a few moments for Koukoulas’ flashbacks. In the early 1990s,
\nrecalls Koukoulas, “the monetary policy setting group looked at the
\ncurrent account deficit (yes, this was a target for monetary policy 20
\nyears ago) and historical inflation, which meant it was very reluctant
\nand therefore slow to ease monetary policy even though business and
\nconsumers were screaming about the economic pain that was becoming
\nsharper as the wheels fell off.”<\/p>\n
“Policy makers at that time also got blind-sided by a couple of
\n\u2018surprisingly resilient’ GDP reports from the Bureau of Statistics
\nwhich lead them to view that that things aren’t half as bad as the
\nsurveys and anecdotes were suggesting. Alas, those
\n\u2018surprisingly resilient’ GDP reports were subsequently revised lower \u2013
\nto the point that confirmed that the economy was indeed in recession a
\nquarter or so earlier than the data originally suggested.”<\/p>\n
“Back in 1989 and 1990, it was also the case that the world economy was
\nslowing, but because Australia’s export links were so closely tied to
\nthe miracle economy \u2013 Japan it was then \u2013 and the rest of Asia was
\nstrong and growing, the slump in business and consumer sentiment was
\nput down as self interested groups complaining about a short period of
\neconomic hardship or a partial reversal of the excesses of the
\n1980s. What’s more, the labour market was tight, there were
\nfears of wages accelerating and the fall in house prices was merely a
\nwelcome correction to what had been a frenzied house price bubble in
\n1987, 1988 and 1989.”<\/p>\n
Sounds familiar?<\/p>\n
Says Koukoulas today: “What’s worrying now is that the household debt
\nto household income ratio is now around 165% (it was under 50% in 1990)
\nand 12% of household disposable income is used to service that debt (it
\nwas 9% in 1990). With mortgage rates up 150bps or more in the
\nlast year, the consumer sector is under the pump as it uses money for
\ndebt servicing and not consumption.”<\/p>\n
Turns out Koukoulas could have hardly picked a better timing to publish
\nhis flashback: on the very same day the Australian Bureau of Statistics
\nrevealed employment in May fell for the first time in 19 months.
\nEconomists had predicted a rise, so you can imagine the head scratching
\nthat is currently going on through the country.<\/p>\n
According to the ABS, employment fell by 19,700 in May with full-time
\njobs down 10,400 and part-time employment down 9,300. The unemployment
\nrate was stable at 4.3%. The participation rate fell from 65.5% to
\n65.2%.<\/p>\n
Economists, in their initial responses to the surprising fall, maintain To hike or not to hike remains the main question for the RBA. Even though economic indicators are increasingly showing weakness is kicking in. Today’s May labour market data were weaker than expected.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[21],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/54336"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=54336"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/54336\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=54336"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=54336"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=54336"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nthere’s no need for panic of any sorts, but one would have to be a real
\nhardliner on interest rates and inflation to not acknowledge the odds
\nhave shifted further in favour of the Reserve Bank of Australia leaving
\ninterest rates on hold for the time being. Certainly, ANZ’s prediction
\nof two more hikes before year end seems less plausible as weaker
\neconomic indicators see the light of day, though some economists,
\nincluding CBA’s Monica Eley, maintain there remains a greater than 50%
\nchance the RBA will lift official interest rates again in 2008, taking
\nthe cash rate to a likely cyclical peak of 7.50%.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"