There’s a general acceptance that the Australian economy is on its way towards a gentle recession, if we aren’t already there.
In fact the GDP figures for the December quarter could very well reveal a quarter of negative growth (notwithstanding the December stimulus) when they are released next month on March 4.
And we may get an idea of what the Reserve Bank thinks (beyond its recent board minutes) when the Governor, Glenn Stevens, appears today before the Federal Parliamentary Economic Committee for the first time this year.
There’s a strong expectation from the RBA’s forecasts in its recent Monetary Policy Statement for the first quarter and the Treasury’s forecasts attached to the $42 billion economic package from Canberra, that the economy will nudge along in a trough in the middle months of the year, before bouncing as the impact of the stimulus and the lower Australian dollar bites.
But that will be offset by the sharp fall in national income from the commodity price slump, especially iron ore and coking and thermal coal.
Australia’s gross domestic product rose by just 0.1% in the third quarter, the weakest in eight years.
The RBA said gross domestic product will rise 0.25% in the 12 months to June, compared with a November prediction of 1.5%. Treasury is for a similar sort of increase.
Among commentators, Goldman Sachs JBWere are predicting a recession (more of them below) and the NAB is forecasting a "mild’ recession.
But it took a statement from global ratings agency, Moody’s yesterday and some interesting research from Goldman Sachs JBWere, to get people wondering about if we are prepared for a much sharper contraction in the economy than we expect.
In fact, after reading the Goldman Sachs research there’s every chance our export performance will be so bad as to drag the economy deeper into a slowdown as the year goes on.
At the same time the possibility of the US slump being longer, and any recovery tepid, was discussed at the meeting late last month of the US Federal Reserve’s Open Markets Committee meeting which left rates on hold. If that happens, the recovery here might not happen to any meaningful degree until well into 2011.
Not only is there a chance the slump here will be steeper than thought (because the slumps in major trading partners like Japan are much sharper than expected), but the economic motor of the global economy, the US, may not roar out of the slowdown in its usual fashion: it could very well plod, meaning much longer periods of sub-par growth and much higher unemployment.
And that would be bad news for everyone.
Moody’s revealed that it was looking for a 0.4% contraction in the Australian economy this year and a rise in unemployment form the present 4.8% to 7.2% in the third quarter of 2010.
That’s steeper than many commentators have admitted to.
Moody’s disclosed its thinking when warning that it was starting an examination of the current high ratings for our banks: some will be downgraded as a result, or if they are not, it will be the government guarantee that keeps them at present levels.
Banks like Bendigo and Suncorp’s Metway are at risk, as could be the NAB and the ANZ because of rapidly rising bad debts.
Moody’s said in a statement "The outlook for the Australian economy continues to weaken.
"Moody’s will consider the potential impact on asset quality and earnings – and how this may affect Australian bank financial strength ratings."
The Australian banking system remains one of the highest rated by Moody’s, with the four biggest lenders – Westpac, Commonwealth Bank of Australia, National Australia Bank and ANZ bank – carrying financial strength ratings of B and deposit and debt ratings of Aa1.
That puts them in the top 10 rated banks in the world.
Westpac, the CBA, the ANZ and the NAB have all revealed quite sharp rises in bad debts because of poor lending decisions to the likes of Allco, ABC Learning and Centro loans are starting to turn sour and losses and write-downs in that sector are escalating.
So far the banks’ consumer portfolios are sound, but will come under renewed pressure as jobs are lost.
Moody’s said that Australian banks’ Tier 1 ratios, a key measure of financial strength, now "compare better to their international peers than pre-crisis", Moody’s said.
The Australian government’s flexibility to support the financial system and stimulate the economy is "strong" it said.
Moody’s expects to make a more detailed report by March.
By then we will also have a better idea of how 2009 growth will pan out.
Watch the next few months trade figures; the size of the deficit and the speed of the slump in exports will give us a sign of what lies ahead into 2010.
