Saturday, November 26, 2011

Europe's gloom fails to dull rosy outlook for Australia

World Economic outlook - Europe's gloom fails to dull rosy outlook for Australia : WITH the news out of Europe getting worse by the day and night, it comes as a surprise to find that even the more pessimistic Australian economists are actually quite optimistic.

It's getting hard to keep up with the avalanche of negative headlines tumbling out of the Old World. Europe's weekend newspapers report the OECD telling the UK it's slipping back into recession, Belgium's credit rating being downgraded a notch, Hungary's reduced to junk, Italian bonds setting euro-era record high yields, the euro making the greenback look (relatively) good and George Michael scrapping his British tour (that was Murdoch's London Sun).

And that lot wasn't the worst of the week's news and comes ahead of Italy, Spain, Belgium and France this week hoping to borrow $38 billion or so in bonds and bills from markets that don't really want to know about them. Germany is hanging tough in ruling out any quick solutions to the immediate crisis, demanding greater fiscal union as the price for loosening up the European Central Bank's sense of virtue. Angela Merkel could well emerge as an Iron Lady to make Margaret Thatcher look like a marshmallow.

Yet, with all the perversity that makes markets so loveable, the French and German stockmarkets both managed to gain 1.2 per cent on Friday night's session.
They were still sharply down for the week, but there's life in capitalism yet.

That's certainly what Australian economists seem to think. One of the more amazing stories to largely slip under the radar last week was the consensus view of the Australian Business Economists' top 15 forecasters - they're all predicting a rosy future for Oz, only differing by a fairly small degree about how rosy.

The ABE's first XV should represent the financial institutions closest to what's happening in the economy. As Peter Martin reported in the Fairfax media, the group's median forecast is for this year's 1.4 per cent economic growth to be followed by a healthy 3.3 per cent next year and a strong 3.5 per cent in 2013.

The first two are a bit under the latest Reserve Bank year-average forecasts and the 2013 guess a bit above.

No doubt all members of the 15 would add the caveat that their forecasts depend on the Europeans not being totally stupid and trashing the global banking system, but if Europe merely slides into a long recession, we're still travelling quite nicely.

Australians have a warped view of interest rate movements, apparently always thinking rate cuts are good news when they can be a sign of bad news - central banks slash rates hard when the economy is unhealthy.

Thus the ABE median opinion that we'll have only one more 25-point rate cut is actually a vote of confidence in our economy. The most pessimistic view (Westpac's Bill Evans) was that we will have three more cuts, taking the cash rate down 75 points to 3.75 per cent - but that compares with the multi-decade low of 3per cent reached in 2009 when we were successfully fighting off the chance of a recession.

So, the most pessimistic view is that we'll travel much better than we did during the GFC when the economy had just a mild slowdown and unemployment peaked at 5.8 per cent. The rest of the world should be so lucky.

Related Post:

No comments:

Post a Comment