Australian Recession

[waterbottle]

Having not been around long enough to ever experience a recession, I was wondering if some of the older (and wiser) members of ASF could shed some insight into what was happening politically and economically just before our most recent recessions.

Also, given the recent budget, how likely is Australia to experience a recession in the next year or two? I would personally think that the risk is high since the government plans to cut 16500 public service jobs, with more to follow once state health/education funds are withdrawn from July 1.

 

[sptrawler]

The only recessions I've been through 1982-3 and 1991-2 were during periods of high unemployment, climbing interest rates and low consumer confidence.
With the minor adjustments to government spending in the budget, I doubt it will have any effect on consumer confidence, despite the talk it up brigade.
Unemployment appears to be steady and a reduction of company tax on small business should help, with employment stability.
Inflation and therefore interest rates look as though they are going to remain low, untill the economy shows signs of recovering.
So I personaly don't think it is looking like a recession is on the cards, but hey I never picked the other two, so what would I know.
I'm just a pleb like you.

 

[So_Cynical]

Having not been around long enough to ever experience a recession, I was wondering if some of the older (and wiser) members of ASF could shed some insight into what was happening politically and economically just before our most recent recessions.

Read all about it: http://en.wikipedia.org/wiki/Early_1990s_recession_in_Australia

Also, given the recent budget, how likely is Australia to experience a recession in the next year or two?

A Recession is not likely as long as the China story holds up, has little to do with Abbott and the rest of the Noalition.

 

[piggybank]

Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as......Read more in the link below

http://en.wikipedia.org/wiki/Recession

You may also want to try Google - plenty of reading material



Regards
PB

 

[Smurf1976]

Unemployment is both an effect of recession and a cause of it continuing. The economy turns down so people lose jobs. People without jobs don't spend much, thus sending the economy further south. Others who still have jobs become more cautious about their spending, in case they too lose their jobs. End result = unemployment rises quite rapidly as the effects compound.

Typically, for a recession there's some sort of "shock" to trigger what was probably always going to happen anyway. Historically (looking at it in developed countries generally), a sharp rise in either interest rates or oil prices have been among the more common triggers, since both have widespread economic effects (borrowed money is everywhere, a large portion of businesses and consumers have at least some debt, and just about every good and many services involve fuel / transport in their production).

Interest rates were high during the last two Australian recessions whilst at the global level, many countries struggled economically with the surge in oil prices leading up to 2008 (and the same thing happened with the oil price jumps in 1973-74 and again in 1979).

Theoretically, a sharp rise in other prices could do the same although most things are either less important overall, or are less volatile, than interest rates and oil. But if the price of food, electricity or something else with very widespread usage and which constitutes a significant expense for most consumers and/or businesses were to rise in a big way and do so suddenly then that could do it.

Likewise a drop in national income is another potential trigger. Eg if the price of our mineral exports were to collapse whilst a drought affects agricultural production then that's not going to help the economy. Whether or not it triggers an actual recession would depend on the severity of the situation.

Looking at Australia in the short term (next couple of years) I don't see an obvious trigger for a national recession but I can see some local issues in some states certainly.

ACT - Likely to bear the brunt of public service job cuts. The actual cuts, plus the fear that those who still have their jobs may lose them in due course, would likely see a drop in consumer spending which affects most businesses. The public service being the largest "industry" in the ACT so it has a big impact.

SA - I'm not sure exactly how bad it will be, but the closure of Holden and all the other businesses which depend upon it sure isn't going to help the SA economy given the size of Holden's influence in a relatively small (population wise) state. That said, being relatively small also creates the possibility that if a few other big projects were to eventuate then that might save the situation - adding or losing a few thousand jobs means a lot more in SA / NT / ACT / Tas than it does somewhere like Sydney or Melbourne and there are at least some prospects that something "big" could go ahead in SA (versus far less chance of that happening in the ACT or Tas).

Tas - The state government is practically broke to start with, a number of key industries in the state are seriously struggling due to external factors (Bass Strait shipping costs and the high AUD are big factors) and some have already pretty much collapsed (forestry). Tas also has a relatively high proportion of people likely to be affected by welfare reductions etc compared to the other states, is substantially reliant on Australian Government funding and is also the only state that actually profits from the carbon tax. There is also a disproportionate exposure to certain industries which are not doing well in the current overall economic climate - eg manufacturing accounts for one third of Tas exports versus 8% nationally. That said, there are some positives - tourism is doing extremely well in Hobart (but not so much in the rest of the state) on the back of MONA for example and agriculture is doing fairly well too. But overall Tas is struggling economically so it wouldn't take much to tip the state into recession as such.

So I can see some difficulties ahead in the ACT, Tas and possibly SA but it doesn't look so bad elsewhere especially NSW and Vic - the size of Sydney and Melbourne in itself creates a lot of local demand for goods and services and means that any one industry isn't generally that important. Lose 1000 jobs in Sydney - it might get a brief mention in the media somewhere. Lose 1000 jobs in SA or especially Tas and it's headline news.

All that said, it would only take something like the oil price doubling or China falling on hard times economically and we'll be in real trouble. It could happen.