EDITORIAL FRIDAY 31.07.09.
Just in case you didn’t see the front page of the Telegraph, apparently the Global Financial Crisis is over, having been killed by unbridled optimism. While it is difficult to deny the optimism of the headline, others are not quite so sure. Is it possible that the Great Recession is turning around? Is it possible that this is the Recession That We Didn’t Even Have, because so far Australia has not recorded a “technical” recession at all? Or has the Telegraph jumped the gun in its enthusiasm to be the first to declare in print that happy days are here again?
The report stems in part from observations made by the United States President Barack Obama that the volatility of financial markets had largely settled down. He said, “We have stopped the freefall. The market is up and the financial system is no longer on the verge of collapse... so there's no doubt that things have gotten better. We may be seeing the beginning of the end of the recession.” And it is true that much of the volatility has disappeared, and that the stockmarket has been picking up strongly. But that’s not all there is to the story and the President didn’t actually say that the crisis is over.
For the Americans, unemployment is still rising, credit is still in short supply, and the nation faces an enormous debt along with a monstrous budget deficit. The United States economy is still very much in recession with the next Gross Domestic Product figures expected to show a further contraction. It is true that here in Australia we are in much better shape, for a number of reasons. Two principle reasons are that the previous government built up a health budget surplus and cash reserve, and the current government acted swiftly to boost the economy and prevent the damage from being worse than it has been.
At the same time, Australia still confronts the prospect of rising unemployment, and weak business investment. There are still many uncertainties in the international market place which may affect our economy. And now there are new concerns about a possible housing price bubble expressed by the Reserve Bank Governor Glenn Stevens this week, along with the first hints of a return of the threat of inflation. That’s why so many people from the Treasurer through the Finance Minister and on to a range of economic commentators are rolling out that well worn cliché: “we are not out of the woods yet.”
While interest rates are low, there is already talk of when they might be expected to go up again. While housing prices fell for a while, now they are rising, and the challenge of housing affordability is no closer to having been solved. In fact, for low income earners who were awarded no pay rise in this year’s Fair Pay Commission decision it is becoming worse. Access Economics has reported that the construction sector is in desperate straits and will be for quite some time. So all in all, it is a bold call to declare the Global Financial Crisis to be “over”.
At the same time, it is not a bad thing to see some optimism on the front page of the newspaper.