Local issues dominate economy

BUSINESS and consumer confidence, already at historic lows is unlikely to be dramatically affected now that the US has started retaliation for the September 11 terrorist attacks.

BIS Shrapnel senior economist Nigel Hatcher believes businesses and consumers already have taken a hit following the terrorist attacks and were unlikely to be dampened further.

He said demand for commodities also was likely to remain low in the short to medium term with a recovery tipped for the middle of the decade.

Any defence demands for commodities would not be enough to offset the drop in world economic activity unless it turns into a more major conflict, he said.

“It (the US bombings) doesn’t change anything fundamentally about the health of the Australian economy, but it might take another six months before we see a recovery,” Mr Hatcher said.

“The point to note is that the Australian economy was in the early parts of a recovery prior to this. The business cycle in Australia is driven by domestic factors and they were all starting to line-up for a recovery.”

CCI chief economist Nicky Cusworth said it was more than just consumer sentiment that would affect the economy.

“Its not just a question of confidence itself but also on people’s inclination to spend,” she said.

“We haven’t really seen a precedent. It’s not like the Gulf War or Vietnam. This is quite different.”

Macquarie Bank divisional director David Griffiths said that, in periods of uncertainty, private investors tended to sit and watch what was going to happen, while institutions and fund managers continued to trade driven by superannuation.

A drop in capital raisings, another feature of the uncertain economic climate, was providing a further boost to existing stocks, he said.

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