A healthy long-term perspective

23/04/2009 - 00:00

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It always pays to look on the bright side, and it’s not such a bad outlook for WA.

A healthy long-term perspective

POLITICIANS normally run a million miles from the 'R' word, but this month recession has seemingly been on everyone's lips.

Prime Minister Kevin Rudd said on Monday it was inevitable Australia would slide into recession.

"The worst global economic recession in 75 years means it's inevitable that Australia will be dragged into recession," he told a forum in Adelaide.

"The severity of the global recession has made it impossible for Australia to avoid a further period of negative economic growth."

This followed some softening-up comments by Treasurer Wayne Swan earlier in the month, and the release of economic growth data showing a decline in the December quarter.

Mr Rudd was followed this week by Reserve Bank governor Glenn Stevens, who said it was reasonable to conclude the national economy was already in recession.

"Whether or not the next GDP (gross domestic product) statistic, due in early June, shows another decline, I think the reasonable person, looking at all the information available, would come to the conclusion that the Australian economy ... is in recession," Mr Stevens said.

He added that the current "episode" would be the eighth recession since World War Two, with most associated with international downturns.

The Western Australian economy is also being knocked by the global slowdown, last week prompting the Chamber of Commerce and Industry of WA to revise down its forecasts.

The CCI said although WA remained one of the world's few economies to experience growth this financial year, a weaker export market and ongoing economic uncertainty prompted a revision of its forecasts.

It is predicting growth in 2008-09 to slide from a previously revised 3.5 per cent to 2 per cent. In 2009-10, the WA economy is likely to contract by around 1 per cent.

That would be the first period of negative growth since the beginning of the decade.

That's the bad news. The CCI notes that the slowdown will come on the back of a period of exceptional growth that allowed the WA economy to double in size.

Looking further ahead, CCI expects the state economy to make a strong recovery the following year, forecasting growth to reach 5 per cent in 2010-11 and then 6 per cent the following year.

These are the numbers that never make the headlines but they signal the bright opportunities that lie ahead for the business sector in WA.

CCI has also projected the state's unemployment rate to peak at 5.5 per cent, a modest number relative to the levels that prevailed for much of the 1980s and 1990s.

The Reserve Bank also has a relatively positive longer-term view, according to an analysis of the Reserve's latest board minutes by CommSec Economics.

"The Reserve Bank Board has revised down growth forecasts for 2009, assuming negative GDP growth in the March quarter, confirming a domestic recession," CommSec said in a research note.

"The board has indicated that while growth is expected to soften in the near term, the longer-term view is much more favourable."

Some of the positives on the international front include tentative signs of an improvement in US retail spending and in particular a pick-up in Chinese steel production and business activity.

On the local front, interest rates are at 49 year lows, and are tipped to move a little lower, and there has been a very large fiscal stimulus from extra government spending.

As discussed last week in this column, the extra government spending comes with a price tag - higher debt and higher interest rates in future.

Nonetheless it will have an expansionary effect on the Australian economy.

The Reserve Bank board clearly believes the Australian economy has been front loaded with more than enough ammunition over the last few months to combat the current downturn, CommSec concluded.

That provides some encouragement for business development managers.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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