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The Economic Twilight Zone.

July 29th, 2009 · Greg Atkinson · 6 Comments

The world’s major stock markets have all enjoyed fairly strong rallies over the last week or so and in Australian the ASX All Ordinaries has run up around 30% since March. But there is a sense of unease amongst investors because there are still plenty of economic indicators that suggest the global economy still faces challenges.  That is because we have entered what I call the Economic Twilight Zone!

The “zone” is confusing place for we cannot be sure if the economic data we see if a trend or an abnormally. The economic picture has been distorted by the interventionist actions by government around the world and nobody is quite sure what this means for the long term world economic outlook.

We are no longer in bear market territory and yet we are not really confident we are in the next bull market either.  Australian economic data suggests we are not yet in a technical recession however unemployment is rising, business investment is down and government tax revenues are falling.  It feels like a recession but is it? Or do we simply feel we are not in a recession when we actually are?

Then we have U.S. house prices finally showing signs of life and yet consumer confidence is very week and actually fell according to the latest data.  Japanese business confidence appears to be rising but retail sales figures are still weak. Sometimes the news from Europe seems to be positive and the next day we hear of further problems with the economy in the Eurozone…confusing isn’t it?

At this stage of the global economic cycle market experts are as confused as the rest of us but in a lot of cases their ego’s prevent them from admitting it. No human being on planet earth has the capacity to be across all issues affecting the world’s major economies but yet a lot of people try and pretend they are.

If you think you are a Chinese economy expert then you are not across what is happening in Japan in detail. If you feel you are an expert on the Japanese economy then you are unlikely to be an expert on the U.S. economy as well. (except in your own mind) National economies are big and very complex.

Economists however often claim to be experts about everything from agriculture to technology and ramble on about the G-20 economies like they have have some deep understanding of all the factors at play. They don’t, they are simply often out of their depth and fail to understand many of the factors that drive modern economies.

If you add politicians and journalists into the fray then is it any wonder we hear conflicting viewpoints and forecasts that range from one extreme to another. For example yesterday Glenn “I raised rates too far”  Stevens of the RBA outlined a somewhat optimistic view of the Australian economy whereas Lindsay Tanner stuck with the Governments line that the Australian economy still faces challenges. They both can’t be right can they?

But let us not forget that Glenn Stevens and the Reserve Bank of Australia failed to spot the looming economic crisis coming in the first place so one would have to question their crystal ball gazing skills. Lindsay Tanner on the other hand has no choice but to paint a somewhat cautious view of the economy otherwise people will wake up to the fact that Government has been needlessly tossing billions of dollars around.

In one breath the Government and RBA are saying that Chinese demand saved the Australian economy and then when it suits them, they ramble on about how fiscal policy and Government intervention saved the day…maybe. Australia has held up well largely because of demand for our exports not because of the recent efforts of the RBA or the Rudd Government.

The chances are a computer programme could probably replace the Reserve Bank board and best of all the programme would still turn up in January, unlike the current RBA board who decided to remain on holidays in January this year when the global economic crisis was in fill swing.

Simply put, we have been lucky…so far. Any praise should be lavished upon the hard working people earning export dollars, not number crunching bureaucrats and opportunistic politicians.

The economic outlook for Australia and across the world is unclear and is not likely to become any clearer for a few months until we emerge from this “twilight zone” . We simply do not know if the global economy is really on the mend or if  economic events will take a turn for the worse. My view has been for a long time that we would get out of this mess eventually and that global economy would not slip into a global depression. But the truth is I can not be sure.

Nobody knows for certain how the Australian economy will fare over the remainder of the year but there are enough commentators and market experts out there spraying around forecasts that the chances are one of them will at least be close to the mark. Those who have correctly predicted how the economy will perform will have their 15 seconds of fame, the rest will fade away and try to get it right next time.

The Australian stock market has rallied but more Australians will probably lose their jobs. Some U.S. economic data indicates the economy is bottoming out and yet unemployment is expected to pass 10%. If you want to take a pessimistic view of the global economy you have plenty of data to support your case. Conversely if you are bullish you can also find plenty of statistics to support your argument.

The economic twilight zone is indeed a strange place.


6 responses so far ↓

  • 1 Nirvan // Jul 29, 2009 at 9:40 pm

    Sure we will come out of this only to find Oil at 200 dollars a barrel (again). The population ponzi is catching upto us. What I am seeing is a series of events that will keep hitting full recovery , right from resource constraints, climate to pandemics.

  • 2 Greg Atkinson // Jul 29, 2009 at 9:55 pm

    Hi Nirvan, I guess what worries me the most is the rapid increase in population and the threat of a really nasty virus spreading across the globe. We can work around a lack of oil but as history has shown us, even a flu can wipe out millions of people. It seems to me with all the focus on global warming that we might not be focusing on the real threats to our existence.

  • 3 Cynical Cyril // Aug 5, 2009 at 9:54 am

    If you look at things with a cold heart you could suggest that a pandemic killing millions of people would be healthy for the planet. The Earth is overpopulated – there is not refuting this claim. Economics needs growth to function as we know it… but the Rule of 72 tells us that the growth levels we aim for are not sustainable given the finite resources the Earth can provide us with. We are going to run out of oil, water, farmable land and the oceans will be cleaned out and poisoned if we continue down the current path. Forget climate change for a minute and focus on overpopulation and the ill’s of human impact on our environment. The earth will see that humans become extinct as it will evolve into an environment in which humans cannot survive. We cannot live in synergy with our local environment, we must destroy it. All other animals live within the confines of what the local environment supplies and manage their populations accordingly. We seem to have missed that part of sensible inhabitation of an ecosystem…. Humans decided to follow the virus philosophy of destroying the host 🙁

  • 4 Greg Atkinson // Aug 5, 2009 at 1:05 pm

    Cyril I think there are bigger threats to humanity than global warming and overpopulation as you mention is certainly one of them as I wrote in: Are climate change and global warming dangerous distractions?

    If the planet warms up people can move, but there is no escaping from a shortage of resources. It seems to me that we are focused on the wrong threat.

  • 5 Senator13 // Aug 5, 2009 at 4:13 pm

    I think it is safe to say that there are bigger fish to fry. However I think there needs to be a greater focus on problems in our own back yard first before Rudd goes off trying to solve, and I use that term loosely, every body else’s problems.

  • 6 Greg Atkinson // Oct 31, 2009 at 6:30 am

    U.S GDP data indicates the economy has moved back into growth and stocks rally. Next U.S. stocks plunge because of weak consumer confidence. We are still in the economic twilight zone!

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