With all the news of unemployment rising, manufacturers leaving, China’s problems some are asking when is Australia in for its next recession, so let me start by saying…
We are all products of our environment and experience, so I despise recessions.
Can’t help that, I just do.
I was born in a seemingly thriving city with full employment, a “city on the move!” where the future seemed bright for all.
But when the steelworks, the factories and the coal mines started closing, unemployment rose from only 4% in 1978 to 11% by 1981.
Fortunately for me, I was still a nipper then and not searching for a job, but I can remember very clearly what it was like in the city’s tower blocks (grim).
By 1984, the city had an unemployment rate of 15.5% as the percentage of those employed in manufacturing fell from half to less than a quarter.
Then in 1984-5 the national miners’ strike was head-quartered in the city…and the rest you have probably heard before.
What I find most amazing when I read chat forums today is just how matter-of-fact people are when discussing the high suicide rates on the estates. “Anyone remember people throwing themselves off the top of the towers each weekend?”. “Yeah, me too. Quite a regular occurrence…”.
Does this kind of thing impact my view of the world today? Too bloody right it does.
When I analyse data, I suffer from confirmation bias, just as we all do.
If my analysis tends towards the upbeat and looking for positive news to confirm my belief that Australia is not headed for recession any time soon, then the root cause of that is explained above, and I will never be able to elicit sympathy for people who clearly hope for job losses.[sam id=40 codes=’true’]
What I had never realised until the advent of the internet, is that there is a whole community of people who actually want there to be a recession, to ‘re-set’ the economy.
Being a Brit, I’ve lived through a few recessions now, and in my experience at least , it doesn’t really quite work like that
That said, it is true that recessions can have a useful role to play in clearing up the excesses of the past.
Since the world plunged into the abyss from 2007 onwards, lest anyone needs reminding, there has been a long, drawn-out debate about whether Australia will fall into a recession.
Personally, I’ve never subscribed to that view although many have disagreed with me over all these years.
The good news is you don’t actually need to listen to my views, or indeed to those of the recessionists, since we have a fully independent body which employs a couple of hundred economists in order to assess where are most likely headed: the Reserve Bank of Australia (RBA).
Unemployment is forecast to increase a little through the next few quarters and then fall again in 2015:
“The unemployment rate has continued to move higher and the participation rate has declined noticeably. These factors are likely to continue to weigh on employment growth in the near term, and the unemployment rate is expected to remain on an upward trend for several quarters.
This outlook for the unemployment rate over the next year or so is little changed from the previous Statement.
In 2015, the expected improvement in the non-resource sector should underpin an improvement in labour demand, with growth in employment increasing gradually and the unemployment rate declining.”
Growth and inflation forecasts
The RBA released its most recent output growth and inflation forecasts two weeks or so ago on February 7:
One of the neat things about Australia having a long-standing and independent Central Bank is that they can use their track record to tell you how confident they are of their own forecasts.
Inflation is forecast to stay roughly within the target range of 2-3% until June 2016.
The implication of this is that interest rates may stay at historically low levels for some time since the RBA’s base case is for inflation to remain at around 2.5% until 2016 (commensurate with the employment forecasts above).
Good news for homeowners and borrowers, less good news for savers.
As for the economy, the RBA projects GDP growth of:
-year ended June 2014: 2.25%
-year ended December 2014: 2.25% to 3.25%
-year ended June 2015: 2.50% to 3.50%
-year ended December 2015: 3.00% to 4.00%
-year ended June 2016: 3.00% to 4.25%