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A mild recession

Prime Minister Kevin Rudd and Reserve Bank Governor Glenn Stevens dragged the R-Word out of hiding during April, saying that it would be very difficult for Australia to avoid a recession considering the state the rest of the globe is in.
Rudd and Treasurer Wayne Swan have done a great job stimulating the economy, but have been saying the global economy looks like it’s getting worse and this will affect Australia.
This may be true, but Stevens outlined 6 great reasons why we should be confident that it won’t be, in my words, a really rough recession. Here they are:
  • First, political stability remains assured – something becoming a bit less common.
  • Second, the Government does not own, and has not had to give direct financial support to, the banking system. Australia will be free of the difficult governance and exit strategy issues that such support is raising in a number of countries.
  • Third, public finances remain in very sound shape, with modest debt levels and a medium term path for the budget back towards balance. Without the massive obligations arising from bank rescues that will inevitably narrow the options available to governments in other countries, Australia should be able to articulate such a path more effectively than most.
  • Fourth, sensible policy frameworks – both macroeconomic and microeconomic – remain in place; the financial regulatory system is strong and tested.
  • Fifth, we remain open for trade and investment, and have a capacity to deploy both our own and other people’s capital carefully and profitably.
  • Finally, there is an exposure to, and an engagement with, an Asian region that still has the most dynamic growth potential in the world, where hundreds of millions of people will for decades to come be seeking rising living standards.
Earlier in the month Craig James of CommSec posed the question, “Does this look like a recession?” We had an 8.9% spike in consumer confidence, and that would have to be some of the best recession-busting news in a while.
Over in the US, some economists tipped there is still a good chance we will see a second half of 2009 recovery.
Many US companies posted “better-than-expected” profits and this is a great sign for the American economy. For example, market analysts tipped that the shares of chipmaker, Intel, would be as low as 3 cents a share when it reported for the March quarter. This quarter was terrible for the US, but Intel actually came out with a profit per share of 11 cents! Apple also reported better than expected which is a great sign for the US economy.
One issue late in the month was, and continues to be, swine flu, but the markets aren’t reacting too badly which could be a sign that negativity is starting to turn positive on Wall St.
This month in my Yahoo articles, I looked at the all-important topic of properly managing your superannuation in light of the fact that super returns were hit hard in the second half of 2008. Some super fund members are probably thinking they can manage their super better themselves, and would be looking at DIY super, or a self managed super fund. SMSFs can be a great option for some people, but a disaster for others.
As I pointed out in another Yahoo super article this month, doing your homework, asking questions, speaking to experts (and I’m talking about trusted financial advisers, not your local grocer), and establishing goals can really prove to be beneficial when it comes time to retire. Financial advisers can also show you strategies to build your wealth.
Interest rates were left at 3% after the May meeting, and we shouldn’t forget that this is the lowest it has been in half a century! But the banks have been copping it a bit this month, refusing to pass on the full cut.
My media mates continue to publish negative headlines, so in the interests of balance, Good News Daily is still operational and a piece of good news is posted Monday to Friday. There are good news stories out there, and it’s important they get a run too.
One last thing before I go. I have always been more positive for the Oz economy because I believed China would do better than the doomsday merchants predicted. Recently, China’s manufacturing reading got out of negative territory and in March it saw a record for car sales. The stimulus package is working and the economy is on the comeback trail. That’s great for us and it is why I and the Commonwealth Bank, as well as CommSec think we’re in for a mild recession.

Have a great month. 

Published on: Thursday, May 07, 2009

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