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Japanese Economy Contracts for Fourth Consecutive Quarter

20 May 2009

Japan has suffered its steepest quarterly contraction in economic activity since WW2, shrinking by 4 per cent in the March quarter. In particular, a 26 per cent decline in the value of exports and a dramatic decline in domestic consumer demand have shrunk the Japanese economy by 9 per cent between March 2008 and March 2009. Additionally, revised figures have suggested that Japan’s economic performance in the December quarter of 2008 was worse than expected. It is the first time that the economy has experienced four consecutive quarters of economic contraction since records began in 1955. However, there is an increasing consensus amongst economists that the Japanese economy may begin to recover in the next quarter, perhaps even growing by 0.1 per cent – in particular, the resurgence of stronger economic activity in China and the effects of a Japanese $192 billion stimulus package will likely contribute to a slight increase in economic activity.

Consumer Confidence Falls after Budget

20 May 2009

According to a survey released by Westpac and the Melbourne Institute, consumer confidence has dropped by roughly 4.3 per cent since the Federal Government announced the details of its 2009-10 Budget; the second biggest fall immediately following the release of a budget in the past ten years. According to Westpac chief economist Bill Evans, the fall in consumer sentiment has been driven principally by discord over the sudden build up in government debt. The 2009-10 budget forecasts a deficit of $57.6 billion, or 4.9 per cent of GDP. The survey will likely place additional pressure on the RBA to decrease interest rates at its next meeting in June.

FTA with China could boost GDP by $146bn

20 May 2009

The Australian China Business Council (ACBC) has delivered a report suggesting that a successful bilateral free trade agreement (FTA) between Australia and China would increase real GDP in Australia by roughly $146 billion. In particular, additional trade liberalisation between the two countries would prompt an increase in domestic consumption by between 0.7 per cent and 1 per cent within the first two years of the FTA’s implementation. The ACBC has consistently been a strong supporter of increased bilateral trade between Australia and China, and is comprised of over 700 member companies, including Qantas, BHP Billiton and Rio Tinto. Australia and China have been engaged in bilateral trade negotiations since 2005, and concluded their thirteenth round of negotiations in December 2008. While the progress of trade talks between the two countries has been constructive, it has been measured and slow; despite the tremendous economic benefits available to both economies.

Australia on the cusp of recession

9 March 2009

The Australian economy is on the brink of its first recession in almost 20 years after recently released statistics confirmed that the economy shrank in the December quarter of 2009. The figures, released by the ABS, indicated a shrinking in the non-farm economy throughout both the September and December quarters. In December, total GDP declined by 0.5 per cent, compared to 0.1 per cent growth in the September quarter, leaving growth for the entire year at a mere 0.3 per cent. While Australia is not technically in a recession – defined as two consecutive quarters of negative growth – the figures have confirmed Australia’s clear vulnerability to the downturn in global economic conditions. However, Australia’s performance in December ranked as one of the best among the industrialised world given that the US economy shrank by an annual 6.2 per cent and Japan contracted by an annualised 12.7 per cent. New figures have also demonstrated that Australia’s household savings ratio increased significantly from 3.4 per cent to 8.5 per cent in the fourth quarter; their highest rate since the 1980s and an indication that Australian households saved roughly 80 per cent of the Rudd Government’s $8.7 billion stimulus handout in December.

India’s economy in sharp slowdown

7 March 2009

India, Asia’s third largest economy, grew by significantly less than expected in the final quarter of 2008 as the effects of the global financial crisis made their mark on the once-booming economy. The country’s GDP grew by 5.3 per cent, compared to 8.9 per cent in the equivalent period a year earlier. The grim news sparked a 2 per cent fall in the value of India’s main stock exchange, and prompted further calls by economists for major interest rate cuts in order to stimulate domestic economic activity and ward off any additional downturn in the Indian economy. For several years, India has been one of the fastest growing economies in the world, utilising its comparative advantage in IT services to become an attractive destination for companies wishing to outsource their programming and software work. Indeed, many economists had predicted that the strength of India’s domestic demand in recent years would make it resilient in the wake of the global financial crisis. However, these predictions have proven to be inaccurate, as evidenced by its sharp slowdown in the final three months of 2008.

US Unemployment continues to rise

7 March 2009

The severe recession currently afflicting the US is continuing to contribute to rising unemployment, as new figures put total US unemployment at 8.1 per cent – their highest level since 1983. Since the advent of the recession in December 2007, a significant 4.4 million US jobs have been shed; more than half of which have occurred only in the past three months. The figures have prompted speculation among several economists over whether the US unemployment rate may reach 10 per cent by the end of 2009. Indeed, the figure of 8.1 per cent may be slightly misleading, as it fails to take into account the rise in involuntary part-time workers (or ‘underemployed’ persons). If these employees were taken into account, the rate of unemployed and underemployed people would rise to 14.8 per cent. The figure continues the trend of bleak economic data emanating from the US.

Weakening demand for commodities hits Queensland economy

1 March 2009

Queensland, which for many years has been the hub of Australia’s commodities and resource boom, is being hit significantly harder than expected by lagging global demand for its exports. While Queensland was Australia’s fastest growing state for the past 8 years (growing at an annual rate of 4.8 per cent compared to the national average of 3.2 per cent), it has been hit particularly hard by the rapid fall in Japanese industrial production. Japan’s economy shrank by 3.3 per cent in the last three months of 2008 and its industrial production fell by an alarming 20 per cent. As Australia’s largest export partner and a major recipient of coal exports from Queensland, Japan’s rapidly deteriorating economic outlook is having a tremendous impact on Queensland’s prospects for the first half of 2009. Already, Queensland’s budget has plunged into a $1.6 billion deficit. In its most recent budget update, the Queensland government additionally indicated that a series of renegotiations in export contracts with Japan could possibly cut coal prices by 40-50 per cent. The potential price decline, complemented by a fall in the volume of exports to Japan, could double Queensland’s budget deficit by 2010. Western Australia, which has also grown rapidly over the past few years as a consequence of growing commodity exports, is slightly less vulnerable to the lag in global conditions as it mainly exports iron ore to China, which faces more optimistic conditions in 2009 than Japan.

Falling oil prices hit Caltex profit

28 February 2009

Caltex Australia has reported a 95 per cent decline in its annual profit levels due to the dramatic fall in oil prices throughout the year. The release of Caltex’s figures reflects a wider slump in energy prices; a phenomenon that has been driven mostly by declining global demand for energy in the midst of recessionary conditions. In particular, larger developing countries like China and India have been hit harder by the financial crisis than initially predicted, which has resulted in a significant reduction in their demand for oil and other commodities. Investment bank JP Morgan has predicted that oil prices throughout 2009 will fall to roughly $40. The fall in oil prices has also sparked action and debate from the Organisation of the Petroleum Exporting Countries (OPEC), which has promised to cut oil production throughout the year in an attempt to limit global supply and therefore place upward pressure on the price of oil.

US inflation hits 53 year low

28 February 2009

Amid a continued deepening of the US recession and a substantial decline in energy prices, annual inflation in the US economy has hit its lowest point in over 50 years. The CPI fell by 0.7 per cent in December 2008, leaving consumer prices unchanged compared to their levels one year ago and marking the lowest rate of change in consumer prices since August 1955. Some economists have voiced concerns over the prospect of ‘deflation’; a situation in which prices fall into a self-perpetuating, downward spiral. Given that the US Federal Reserve has already lowered its key interest rate to near zero, its main alternative option for combating deflation involves the concept of ‘quantitative easing’, in which the Federal Reserve increases its credit loans to consumers and businesses to make more money available throughout the US economy. However, a rebound in producer prices throughout January for a wide array of goods, including automobiles and prescription drugs, has helped to ease some of these deflationary concerns.

Government announces $42bn stimulus package

7 February 2009

The Federal Government has announced a massive stimulus package to help boost economic growth in the Australian economy. The package, if passed in both houses of parliament, will provide a significant $12 billion in short-term cash giveaways in order to boost retail spending and household consumption; $14.7 billion to upgrade facilities at public and private schools throughout Australia; and it will allow the Federal Government to increase its maximum borrowing limit from $70 billion to $200 billion in order to help service its debt repayments. However, the package has attracted some criticism from politicians and economists who are concerned over excessive government spending and the prospect of a fiscal deficit; one that will require an increase in government debt. In particular, Opposition leader Malcolm Turnbull has opposed the stimulus package for these reasons.

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