The gloom and doom from the International Monetary Fund about the world economy was understandable.
After all it’s playing catch up and the downgraded growth figures was the 5th reduction in estimates in six months.
Some Australian media outlets fell in behind that line in their reporting, boosting the fact that the Australian economy is forecast to slide by 1.4% this year, with the world economy down by 1.3%. (‘Australia does worse was the line’).
But they should have had a sense of proportion about our performance.
The crunch is no longer the big story; it’s the recession here and overseas.
The credit crunch will continue to have an impact, especially in the US housing and finance sectors.
But even there the job losses flowing from the downturn in the wider economy, rising credit card, car, student and other forms of debt are now being seen as bigger future threats than the impact of the crunch.
But just as the crunch took the world economy to the brink of a very black hole, the recession has pushed us away, but into a trough of known events (based on our experience of previous slowdowns).
That’s not to say that the impact won’t be terrible for many companies, employees and others, but at least it will be understandable.
The fear and terror of the period from Lehman Brothers collapse last September to the end of February this year froze markets and economies.
Now they are becoming unblocked, the recession will proceed to steamroller them.
But that’s something we can handle.
It’s also part of the reason why we in Australia will do much better than other advanced countries over the next year, some of whom are basket cases, according to the IMF’s forecasts, and have been for months.
Unlike our last big recession, the damage to our housing and commercial property sectors will be much less; meaning the impact on demand and output will be less dramatic.
But revenue, cashflow and debt will all take a pounding, as we are seeing from the media, property (Stockland) and manufacturing (OneSteel).
There’s an element catch up in the Fund’s recent forecasts: it was projecting growth of 0.5% for the world this year in January, despite the obvious evidence of the collapse in demand in late 2008 staring it in the face. Will this one be any better?
Japan, the US and even China were taking body blows from the slump.
It’s as though the Fund is making a bid for relevance after being marginalised for years and the only way to do it is to be gloomier than any other forecaster.
Its analysis of the banking and financial crash has been slow to evolve and the very pessimistic Global Financial Stability Report issued this week (but leaked last month) told us nothing that we already didn’t know: the world banking sector is in terrible trouble and the US remains in a state of denial about what has to happen to fix the problem.
The IMF forecast Australia will have slowing growth of -1.4% and unemployment peaking next year at 7.8%.
It was an analysis that some media reports accepted as gospel and as indicating we will be doing it tougher than the rest of the world, which will contract by 1.3%. The difference is marginal.
The reality is (without sounding too optimistic) is that Australia will do it better than many other major economies.
It was a point Prime Minister Kevin Rudd pointed out yesterday, while accepting that the slowdown here will hurt.
The IMF’s global forecast includes growth in China of an unchanged 6.5% and growth in several other emerging economies, such as India and the Middle East. That’s good news for Australia.
But a more valid comparison is comparing Australia to other advanced economies.
"Overall, the advanced economies are forecast to contract by 3.8 percent in 2009, with the U.S. economy shrinking by 2.8 percent.
"Emerging and developing economies will seen positive growth of 1.6 percent, bouncing back to 4.0 percent next year.
"Sub-Saharan Africa will remain in positive territory at 1.7 percent in 2009, recovering to 3.9 percent next year," The IMF said in it latest World Economic Outlook.
The IMF said the advanced countries growth fell 7.5% in the last quarter of 2008: Australia’s eased by 0.5%.
In fact, excluding the eight major economies, Australia’s growth of -1.4% will be comfortably better than the -4.1% projected by the IMF for "Other Advanced Economies". No too bad after all.
And, as the Reserve Bank Governor said this week, Australia is well placed to ride through the recession because we have a stronger financial system, that has not needed bailing out of capital from the central government.
That should be remembered. It will differentiate us for the next few years as the other major economies struggle to generate growth with weak credit creation systems.
Every advanced economy has a financial system crippled in some way by huge and difficult to deal with debts and rising default rates.
Our banks will experience some of that in the next year, but at not at the rate that the US, Japan and European banks will.
Germany received a warning overnight that its growth is worse than expected and for people not to believe that a rebound is coming.
The IMF forecast a fall of 5.6% this year, the government reports its estimate next week and already the existing forecast of a fall of 2.25% is redundant and it could be closer to 5%, according to German reports overnight.
Germany is in the process of nationalising
