The Great Recessionista Bubble

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Trends come and go in the world of finance, and what is definitely not trendy at the moment is say anything remotely positive about the Australian economy.

And this trend has come for a plausible reason: we're about to head through a sticky patch, being the rotation away from the mining construction boom.

You tend to get mocked by those preaching doom and gloom for saying such things these days, of course, but I'm of the opinion that, slowly but surely, monetary policy will likely work, and we will probably avert an Australian recession.

That's not just my view - the RBA's latest Output Growth and Inflation forecast for the year ending June 2015 encompasses a range from 2.5% to 4% GDP growth.

There was a good deal of excitement two weeks ago when our National Accounts showed GDP growth of only 0.6% for the quarter and 2.6% for the past 12 months. Woo-hoo! Recession here we come!

Well, maybe. 0.6% is by no means a great result, but before we get too excited, I wouldn't be at all surprised if the ABS subsequently announces revisions, as is their wont.

The March Private Capital Expenditure survey released by the ABS on May 30 also showed that the phenomenal growth in mining capital investment is now turning from 'boom' to 'swoon'. Hardly a surprise, naturally, for trees don't grow to the sky and we can't simply build mines forever. We gotta actually start using them sometime.

Graph: Mining

Source: ABS

Perhaps curiously, given all the doom and gloom reported, however, the 'Estimate 2' for 2013-4 total capex actually came in well towards the high end of expectations at $156,467 million. Maybe that is in part due to cost blowouts and overruns according to the anecdotal evidence I hear from buddies and former colleagues still in the mining industry.

We should apply more emphasis to actuals than estimates, of course, but this still implies to me that monetary policy has ample time to do its thing before mining capex really drops off. And mining capex, despite what you may have been led to believe, does not make up most of the Aussie economy - it comprises somewhere close to 6% of GDP.

So, it may not be trendy to say so, but the Reserve Bank has cut interest rates significantly which should stimulate the economy, it still has 275 bullets left in its handgun holster yet, and I think Australia will do just fine.

The Australian dollar has fallen from the stratosphere which will help us along, household consumption was growing through the March quarter, house dwelling approvals and housing finance are rising nicely, and trade exports are on the up too (note: yes, there is a commodity price risk here - granted).

So, sure, we're in for a sticky patch, but a recession over the next couple of years? Unlikely, for my money.

The same crew that has been warning of recessions since approximately the dawn of time, have also been anticipating an Australian property crash for the past decade, throughout which dwelling prices have by and large tracked somewhere close to household income growth.

There is an inherent market risk in real estate, of course, particularly in secondary locations, but I think what the housing bears underestimated was just how far 'them that are in charge' will go to protect its beloved middle markets.

It's also now fashionable to laugh in a derisory manner at those who point towards population growth as having supported property values as the musings of a daft simpletion. So be it.

Australia is such an unnaturally urbanised country that it's not at all surprising to me that property values have been eased higher. The 2001 Census recorded 18,972,350 person in Australia. Check out here what the population is today, which will be somewhere well above 23,050,000 when you check it out (the Australian population will have increased every 83 seconds since I typed this).

Sure, property prices would not be impacted unduly by millions upon millions more people competing for our urban land if we constructed enough of the right types of desirable locations...with appropriate transport links and infrastructure, of course...if we didn't suffer from draconian land use restrictions and if we weren't living through an epidemic of NIMBY-ism...and so on.

The key conjunctions there, in the unlikely event you didn't notice them, are the 'ifs'. 


Now while we are on the subject of fashion, a little while back I used the word "recessionista" or "recessionistas" a couple of times.

Rather unfortunately, the phrase is now being used all over the flippin' place, but, sadly, in a misguided context, it being used to refer to anyone who makes a remotely downbeat point about the Australian economy i.e. they may potentially be inferring a recession risk.

Sad to report, but a recessionista is not a pundit who thinks that there will be a recession and nor is it an economist who is forecasting one.

A recessionista is someone - well, it's a woman, obviously - who continues to dress stylishly through times of economic hardship. Recessionistas are ladies who make the best of a bad situation and try to maintain their fashion-conscious lifestyles by buying in the sales or frequenting discount stores.

It's pretty obvious if you think about it, as the word was derived from two others (recession and fashionista) some time after the economic downturn of the early 1990s.

Just to re-cap, a recessionista is not an economist or a pundit who anticipates or forecasts a recession.

It's a woman who continues to present herself stylishly despite having a restricted budget.

Which is, like, erm...yeah...something completely different. 

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