Thursday, October 16, 2014

Australia: are there positive economic threads in the current global gloom?

I was going to write something on the Australian Government’s new industry and innovation statement, setting in an historical context. However, to do that I need to access some of my previous writing, so that will have to go onto hold at least until the weekend.

This time last year I was preparing my annual economic outlook. I am not a super forecaster. I got some things more or less right, right some things more or less wrong. The best think that can be said is that I was broadly right. Australia’s economic performance was better than many forecast at the time, not quite as good as I had expected.

This year, I’m finding the same process far harder. The global strategic situation is far more complex. Ukraine, the Islamic State and Ebola really complicate things. The potential economic costs of Ebola should not be underestimated. It’s not just the West African countries most directly affected. The ripples are spreading far and wide.

The late Tom Clancy’s Executive Orders featured a terrorist attack on the United States using an aerosol version of Ebola, thus combining two current fears. I am not being alarmist. Unlike plague ridden Europe when  perhaps half the population was wiped out, we have the infrastructure and skills to ultimately control the spread of the disease. But you can see from the ripple effects as the disease reaches the US and Europe just how it may affect and slow the patterns of life.

Then, too, we have issues associated with the wind back of quantitative easing. In an earlier post, I wondered because I couldn’t see a clear path here. As QE comes to an end in the US, the value of the US dollar relative to other currencies has risen, placing pressure on the US economy. That was always going to happen. That was part of the reason why I saw the Ozzie falling. But I’m not sure that people realised that QE in Europe and Japan would, inevitably, depress the value of the euro and yen. At the same time, inflation in those areas has remained stubbornly low, economic activity has not picked up.

Here in Australia, Reserve Bank Deputy Governor Guy Debelle is warning that markets may be heading for a "violent sell-off".  The Australian financial press has flicked, as it so often does, to fundamentally negative reporting. We all risk ruin. So lets look at some basics.

House and share prices arguably got out of control in the soft money era. They are likely to come back and affect individual Australian wealth. With global slowdown, there will be (are) softer prices for Australia’s main commodities. Economic activity is likely to slow.  The Feds and states will experience revenue short falls, rising payments. So what?

As I said, I haven't worked through the issues. but I don’t share the gloom. Australia is remarkably well positioned to ride through another economic downturn so long as we can get rid of the presently negative present. I will pursue the reasons for that view in another post.  


Winton Bates said...

The phrase "presently negative present" means ... ?

Jim Belshaw said...

Hi Winton. I had in mind the recent economic commentary. Present in two meanings - what is said (to present)and what is said now (the present).

Spotter said...

I saw a disturbing interview with Peter Dutton the Health Minister who said that Ebola was not like the flu and could only be caught by contact with blood, vomit or diarrhoea. What he didn't mention or maybe didn't know is that it can also be transferred by sweat. And this has been the suspected cause of contagion since the outbreak. A couple of things frighten me. Dutton is the Health Minister and hasn't got a clue. He thinks that if someone contracts the disease they will die within the 30 hours it takes to airlift them back to Australia? Given the incubation period is 2 - 21 days I am not sure where he gets these figures. Current death toll from Ebola 4,500. Government's response, pathetic. Death toll from terrorist attacks on Australian soil, nil. Government's response reactionary and over the top. What, no votes in containing Ebola?
Dutton seems to think that flick passing the problem to Europe or somewhere closer to Africa is the best way to deal with it. WHO have already stated that the best way to deal with this is to contain it at its source. But the Government's blinkered piece meal approach to this is totally at odds with the WHO recommendations.
If this disease ever gets into Asia then god help us all.

Evan said...

Looking forward to the next piece Jim.

Yes, Spotter, a health minister should know that bodily fluids include sweat.

Jim Belshaw said...

Hi Evan and thanks. I will try to get onto it Sunday.

Spotter, digging around, I find that other countries in this time zone have similar reservations. It seems too that the Government has been trying to negotiate arrangements with closer countries. So leaving aside Minister Dutton's medical knowledge, it may not be quite black and white.

Austin said...

I read an article in Bloomberg's about the economic downturn and the fleeing of money into safe havens (gold) I purchased some gold futures on the basis of this article. I closed the position on Friday and made 14.23% in 3 days. Interestingly the Bloomberg article was available to anybody who wanted to read it. So whilst some see current developments as negative others see opportunities.