Not many Australians were surprised by the World Bank’s global forecast this week: that we could be heading for a second GFC, that Europe is probably in recession, that global growth predictions had to be cut from 3.6 per cent to 2.5 per cent.
We’re a pragmatic people and I’ve been hearing people from all walks of life telling me that they assume this is a year of belt-tightening.
This isn’t just anecdotal. Along with the World Bank issuing warnings and downgrades, we’ve seen the forecast from UBS bank this week that Australian banks will shed 7,000 jobs over the next two years.
UBS said one of the reasons for the big banks making lay-offs was that the growth in credit in Australia was the lowest it had been since the Second World War.
Low growth in credit is a classic indicator that the economy lacks confidence or is operating at below-par activity levels. Either way, it fits well into the latest ANZ jobs ads monitor which showed that advertised jobs were 2.6 per cent lower in December 2011 than they were in December 2010; and the Australian Bureau of Statistics released its December unemployment figures through the week showing unemployment holding at 5.2 per cent but with 29,000 jobs lost.
Housing is not in good shape either. The Australian Bureau of Statistics found that borrowing for housing grew just 0.2 per cent between October and November 2011. Commitments to buy owner-occupied housing grew just 1.4 per cent from October to November.
Property prices are also stagnant. RPdata Rismark’s first release of the year showed residential property gains of 0.1 per cent in capital cities fro November 2011, and 0.3 per cent in the regions. This is in the context of property prices being in negative territory since 2009.
What does this mean? I believe that the Reserve Bank has been keeping interest rates reasonably high to try and get inflation down from its current level of 3.5 per cent to within its guidelines of between 2 and 3 per cent. To do this the Reserve has tried to cool the economy by raising interest rates.
However, the generator of the inflation – the mining industry – was never going to be affected by either interest rates or inflation. Mining is now locked into the East Asian economies of China, Korea and Japan.
Instead those high interest rates hurt the manufacturers, the retailers and the hospitality traders of New South Wales and Victoria. I think it’s time to rethink interest rate policy: it’s time to take the pressure off the non-mining economy by cutting interest rates.
* Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.