Australian consumer confidence recovers somewhat...

Australia's current crisis, which started as a financial crisis, is now an economic one.

Our starting point is better than that of any developed country. Don't just take Wayne Swan's word for it.

The Economic Cycle Research Institute in New York has a first-rate record of foreseeing recessions and recoveries months before anyone else. In a technique pioneered by the late Australian statistician Geoffrey Moore, the centre uses more than 100 indices of leading indicators of economic activity to monitor 20 of the world's major economies.

And?

"We are seeing clearly the worst reading in the six-decade history" of the indexes, the institute's Anirvan Banerji said. "Europe is the epicentre of this recession. In the US, we are already 10 months into this recession and we don't see any end in sight. It's not just going down, it's plunging. In the early 1970s and '80s we had 16-month recessions, long and deep. We are set up for that.

"Japan is in recession; China is going into its worst slowdown in a decade or so; a serious slowdown is under way in India. Since the early 1990s, every country has increased its dependence on exports, so international contagion is quite serious."

And Australia?

"I'm not sure about Australia yet," Banerji said. "Certainly it's going to be a major slowdown and it may still be possible to avoid a recession. It's the one significant economy where I wouldn't want to say it's a done deal."

So Australia is uniquely well-placed. This increases the onus on the authorities - the Federal Government and the Reserve Bank in particular - to get Australia through the crisis with the economy still growing.

The Treasury Secretary, Ken Henry, on Wednesday listed eight factors that should help buffer Australia against the global recession.

First was strong company profits. Second was Australia's low unemployment rate of 4.3 per cent. Third was the fat order book of investments in engineering, construction and mining.

Fourth was the federal budget, which is so far offering stimulus this financial year of about 1.5 per cent of GDP - that's 1 per cent from the Government's $10.4 billion spending package, plus another half a percentage point through the automatic rundown of the surplus that takes place as the economy slows.

Fifth was the 20 per cent fall in the value of the dollar against the average of our trading partners' currencies. This will keep exports competitive.

Sixth was the 30 per cent fall in the price of petrol. Seventh was the roll call of big countries announcing their own fiscal stimulus packages.

Eighth was the Reserve Bank's dramatic cuts to official interest rates.

Henry said this list gives reason to be confident Australia can indeed avoid a quarter of negative growth.

Henry could have added three more. Tax cuts are legislated to take effect on July 1. And Australia's terms of trade - the price of our exports compared to the price of our imports - remain very high.

The final, most critical, factor is the supply of that ineffable and ephemeral gossamer known as confidence. When six dollars of every 10 in the national economy is accounted for by consumer spending, confidence is the mainstay.

Australian consumer confidence recovered somewhat this month, up by 4.3 points to 85.5 in the Westpac-Melbourne Institute index.

How can confidence improve as the global bad news continues?

The Reserve Bank's decision to keep cutting rates...

Source:
Peter Hartcher
The Sydney Morning Herald