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News analysis
Economic recovery: the shape of things to come All indications are that the GFC is beginning to
thaw and markets around the world are on the mend, with the Australian economy leading the charge. Tim Neary gets the inside track from the industry experts on how the recovery is shaping up
C Australia is … one of only four advanced nations that hasn’t gone into recession over the last 12 months
hief economist at CommSec, Craig James, says he is often asked why he has been so positive about the Australian economy; so upbeat about its prospects. His answer is quite simply that he has gone out and spoken to CBA customers and clients in small- and medium-sized businesses – and they have told him that the Australian economy is “in good shape and doing very well”. “Going on the basis of what our customers are doing and what our accounts are looking like – overall they have been pretty good – the economic outlook remains good,” he says. That informal acid test notwithstanding, he adds that as far as an economic recovery is concerned the fundamental facts speak for themselves. “Australia is the only advanced nation that is showing positive economic growth at the moment; it is one of only four advanced nations that hasn’t gone into recession over the last 12 months, and it is the first G20 country to have lifted interest rates – it is credited with driving share markets around the world higher,” he says. So now that the Australian economy is in recovery mode, perhaps the real question is what shape will the recovery take? “U, V or W; or even the latest one on the block, the square-root sign shaped recovery – where you pick up and then flat line for a period of time,” he says. While the US scenario could fit a square-root or even W-shaped recovery, James believes the V shape is more appropriate to the Australian recovery. He makes the point that the current economic reality mirrors both the 1982/83 and the 2000/01 economic cycles – both of which Australia moved swiftly out of.
In addition, James makes an interesting point about the GFC being the first global downturn to occur in the internet era. Along with some good websites – like the RBA website – you also get some blog and Twitter sites that spread a lot of speculation and innuendo, he says. “So this is the first downturn where everyone in the world knows what is happening at any one point in time,” he says. But, in the same way it exacerbated the rapid deterioration of the markets it has enabled an equally rapid restoration of both business and consumer confidence and a return to spending, employing and investing. And this 21st century phenomenon, James says, acts as an additional stimulant that contributes to Australia’s swift recovery. That said, National Australia Bank economist Alan Oster was more circumspect than James in his assessment of the nature of the recovery, when delivering a talk (via video) at the recent NAB Broker roadshow in Sydney. Not convinced that the recovery would be as sharp as to constitute a V shape, he feels there could be some steadying in momentum before things began to ramp up again – suggesting more of a U-shaped return. However, Oster is equally of the opinion that it is unlikely for a dip to occur now and is steering clear of predicting a W-shaped economic recovery. For that to play out he feels something on the “Lehman Brothers scale” would need to occur on the global stage first. Meanwhile, at the recent Loan Market Group broker retreat in Melbourne, John Pilkington, GM for liquidity operations at CBA, said it was too early in the recovery to make accurate predictions. “While certainly we need to have a V before a W, we’ll need to wait and see how the recovery develops from here,” he said. Pilkington’s feeling is that the industry has come out of the economic downturn very strongly, but it remains hard to see the recovery “just continuing” at this rate. “Expect some sort of plateau”, he says.