Analysis - Economy looking dark, dawn some way off
11 Nov 2008 5:46 PMBy Garry Shilson-Josling, AAP Economist
SYDNEY, Nov 11 AAP - They say it's always darkest before the dawn, and it'salready getting pretty dim for the Australian economy.
Business confidence is fundamental to the economic outlook, and with that in mind, the findings of latest National Australia Bank (NAB) business survey are dire.
The survey, which has been running since 1989, found business confidence fell to its lowest level ever in October.
Before the financial turmoil of September dealt its body blow, investor spirits were already at their lowest ebb since the 1990-1991 recession.
And they have now sunk beyond even that.
Business forward orders are falling at the fastest rate since the recessionand profits are nearly at that point.
NAB's economists figure their survey points to a sharp slowdown in economicgrowth, with non-farm gross domestic product (NFGDP) heading toward annualgrowth of around one per cent, compared with a pedestrian 2.5 per cent over the year to June.
That would be consistent with the latest forecasts from the Reserve Bank ofAustralia (RBA) and Treasury.
In its quarterly monetary policy statement released yesterday, the RBA lowered its forecast for NFGDP growth through 2008 to 2009 to one per cent.
The Treasury, in its mid-year review of the economic outlook last week, revised its forecast for NFGDP growth in 2008-09 to 1.75 per cent.
The two sets forecasts are not at odds, by the way.
The RBA's forecast refer to growth from one June quarter to the next, whileTreasury's is done on a year-average basis - the whole of 200809 comparedwith 200708.
Given that - and the convention of both organisations to round forecasts tothe nearest quarter of a percentage point - there is barely split hair between them.
The consensus that the economy is heading into a slowdown is strong in boththe public and private sectors.
The real uncertainty is over how deep and how long the downturn will be.
It could be severe and protracted.
This is what many fear, not surprisingly - even seasoned forecasters find it hard to imagine economic circumstances much different to those applying at the moment.
Or it could be shallower and shorter-lived than expected.
Whichever scenario turns out to be right, the sorry tale from NAB's survey will not be the last evidence of economic malaise.
Over the coming six months, will switch from financial markets to the labour market.
Unless the economic forecasts from the RBA, the Treasury, the NAB and everyone else with an opinion are way off the mark unemployment will rise.
The increase will most probably dwarf the rise that boosted the number of unemployed by 122,000 over the year to October 2001.
The monetary and fiscal authorities around the world are throwing everything they have at the problem.
The latest salvo, the Chinese government's fiscal stimulus package announced just this week, is worth the equivalent of three-quarters of Australia's annual GDP.
These actions will have their effect and Things will get brighter eventually.
For the time being, though, it's looking rather dark.
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