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Where to for the Australian Economy?

February 12th, 2008 · Greg Atkinson · No Comments

Let me first start by saying I think any predictions about the future are best described as forward looking guesstimates. So before reading on, please remember this is just my view and I am not aware of any ability I have to see clearly into the future.

Before I dazzle you with my outlook for the Australian Economy let me say that the Reserve Bank of Australia (RBA) is not an all knowing institution and can make mistakes.

This needs to be said, as many people seem to think that if the RBA says something or comes to some conclusion in regards to the data they analyse, then of course the RBA’s view must be correct.

We also need to appreciate that the current Australian Treasurer Wayne Swan, is hardly a well qualified economic manager (in terms of qualifications or work experience) and is also a politician..hence what he says needs to be treated with caution.

So at the moment we have a reasonably sound but not perfect institution and an inexperienced Treasurer trying to manage the until recently, booming Australian economy. I discount any valuable input from the Treasurer since he claims (along with the Prime Minister) that fighting inflation is his number one priority but still went to the election promising significant tax cuts. (hard to stop people spending if you give them more cash!)

Let’s face it, if the current government really wanted to curb inflation they would scrap the tax cuts, but the political reality is they cannot do that so it seems it is up to the Reserve Bank to do the dirty work.

So now we must rely on the RBA making the right calls regarding interest rates at the right time and my guess is they have overplayed their hand. I might be wrong and probably am, but I think they are putting the economic brakes on too hard and as a result they are setting up the Australian economy for a fall.

The recent business sentiment survey indicates most companies are not very optimistic about the next 6-12 months so the economy might already been on the downward slope. This combined with a post Olympics downturn in China would really cause some pain and this is what I expect to happen.

I am not expecting another stock market rout (we already have had that) but I am cautious about the outlook for the next 12 months or so. I would expect the ASX to recover ground this year and finish 2008 near last years peak but that is about it. (and that is definitely a guesstimate)

I also suspect the RBA will sometime soon read the economic tea leaves again and not raise rates much further, and even possibly lower rates later in the year.

Well there you are….let’s see how red faced I am in December!

And remember, if all you think about is the stock market, then you really need to get a hobby.

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