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Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland, Australia – (update 8). Australia showing a dramtic stagflation outlook.

Posted by Adrian on September 1, 2008

Which ever way one would look at the global economy in it’s current state, especially in the developed countries, you would be hard pressed to say that consumer sentiment is what it was 5 years ago. In fact the consumer is in recession, quite possible in every country in the world, apart from China and possibly India (although India would not be far behind). The largest economy in the world, the US economy is in a mess, with a tentative export market (thanks to weak US dollar over the last year) has somewhat propped up the GDP over any negative. But take out the export equation it would be highly likely US GDP would be very negative. America is in recession.

Australia which is technically in a consumer (retail based) recession due to high food, fuel, housing (rents and mortgages); may not get a major drag on the GDP due to one industry propping up the Australian economy – which is mining. Wholly dependent (as an export market) on the continued ‘hyper’ commodity booms of China and India, which is undoubtedly causing a stagflation period in the Australian economy with inflation at 4.6%, slightly falling from 4.8%; this is above the bands of 2 and 3 percent (RBA inflation targets). With every other production trend pointing downward, infrastructure (non mining), investment (non mining) an so on. So any slowdown in Australia could be quite dramatic, as I suspect unemployment figures will come in harsh towards the end of the year with consumer spending and housing prices to drop significantly. The four states of Australia minus the mining state (Western Australia) most likely are heading into a sharp downturn towards the end of 2008.

Australia may present it’s self as a classic example of a stagflation economy, more so than the US and Europe and even parts of Asia – who are all suffering from high inflation and slowing economies.

The commodity markets have somewhat stabilized (although I would argue that there is instability in commodity prices – on fear of regulation) but we could see a spike too food prices, namely wheat, rice and soy towards the end of the year. Not to forget that oil is sitting on a stagnant $116-$117 price range (sans Hurricane Gustav about to hit the US Gulf refineries). Spikes in headline inflation (food, oil) may continue right into 2009. So any country that has an industry still booming on the back of Chinese demand, like the Australian mining boom; could be heading into a nasty patch of stagflation.

The Australian Federal Reserve will cut rates on the 2nd September to 0.25%, from 7.25% to 7.00%. The banks will pass on little of their own rate cut’s onto the mortgage market.

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4 Responses to “Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland, Australia – (update 8). Australia showing a dramtic stagflation outlook.”

  1. […] in Finance and Economics. Strategy and Society by Adrian on September 3rd, 2008 As discussed in Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spa…. Australia’s GDP came in weak, at 0.3%. Which is due solely to the mining sector keeping the […]

  2. […] in Finance and Economics. Strategy and Society by Adrian on September 3rd, 2008 As discussed in Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spa…. Australia’s GDP came in weak, at 0.3%. Which is due solely to the mining sector keeping the […]

  3. archanan said

    information is not in adiquate please add some more information

  4. archanan said

    information is not please add some more information

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