# What would it take for an Australian recession?



## alwaysLearning (23 April 2008)

I'm new to talk about the economy etc, so go easy on me.

But a quick question:

Why is it that people are saying that Australia looks like it could be going towards a recession? How would an Australian recession affect the cost of houses in Australia?

Is it because of the following reasons?
1. Interest rates rise therfore there is an increase in pressure on people that hold a mortgauge for a house. These people are forced to cut back on leisure items. This in turn would create less people spending money in shops etc. (Therefore slowing the economy).-->Could also cause people in retail to lose their jobs due to less demand for their products?

2. Apparently it is now more difficult to obtain credit. If someone could tell me why that would be great. Is it because that with a higher interest rate you can only borrow less?--or is it because the mortgauge prime situation in the US has had an effect on non-bank lenders such as Aussie Home Loans and RAMS? etc?

3. Are people talking about recession because it seems that the US is currently in recession?--or is it if the US goes into 'hard recession' that it will spread throughout the world creating a global recession?

4. Is it because the intrinsic value of house prices appear to be inflated that is making people borrow more credit then what they would have 15 years ago such that their mortguage repayments per month taken out of their monthly income, as a percentage figure is a lot higher than previous generations? For example, if you want to buy a $400000 home and you earn only 50k per year, then over 50% of your monthly income would go automatically to the banks in order pay back your mortgauge. This percentage figure would have been less during previous generations.

5. Is it because the wages of the average Australian seems to be out of whack in comparison to what one can afford these days. I.E. on an average income we can borrow less money via loans due the interest rate rises. (which means not being able to afford houses) But also, everyday items seem to be so expensive now days. Like buying bread is $4 instead of $2 etc.

Are these the main arguments here for a recession to occur? Why else would a recession occur and is there any benefit for an economy during a recession?


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## Uncle Festivus (23 April 2008)

Interest rates would be contributing, unemployment would be confirmation. We currently have one but not the other so.... no recession yet?


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## numbercruncher (23 April 2008)

Unemployment edged higher in March, be interesting to see this months.


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## Timmy (23 April 2008)

Hi aL - I think learning about the economy is a great thing for a trader/investor, it helps you see a lot of what is written about the economy for what it is ... worthless, ill-informed, attention-seeking, newspaper-selling, claptrap.  I would tell you what I really think but this is a family-friendly forum.

First, find out what a recession is ... what does "recession" mean?  If you know this, and you know what is driving the Australian economy, you will know the chances of Australia going into a recession in the next 2 to 3 years is remote (I wont speculate out any further than this).  Then you can turn your attention to the question that seems to be at the heart of your post - housing prices.  Have a look around at housing in Sydney metro (where I live, so I can't comment on the rest of Australia).  Depending on what market you are looking at (there are many, many sub-markets - East, West, North, South, inner, outer, units, houses ... the break-down can go on and on, even street-by-street) actual dealing prices are cheaper than they have been for a long time.  Then again, in some sub-markets prices are stronger than they have been for a long time, but these are small sub-markets.  I suspect the pattern is the same in Melbourne, other areas I wouldn't have a clue (some will argue I don't have a clue full stop)

PS - I haven't seen the break-down of economic growth by state, this will shed some light on the chances of recession or recession-like growth on a state-by-state basis.  Go to WA and say recession - get laughed at... Be interesting if anyone has some figures on a state-by-state basis.

PPS Does anyone have some good sources of rational discussion of the Australian economy and where it is currently at?
I have found:
http://www.state.gov/r/pa/ei/bgn/2698.htm
but would like some more sources?


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## alwaysLearning (24 April 2008)

From another forum someone else said this about my post. Do you agree with him?

 1. Interest rates rise



> No. Interest rates are effectively set by the central bank. They tend to raise interest rates when the economy is growing too fast and drop them when the economy is growing too slowly (or shrinking). The overall goal is to manage inflation.




2. Apparently it is now more difficult to obtain credit.



> No. The ability to gain credit is closely related to the liquidity of the money supply. If credit is harder to get it means that the money supply is tight.




3. Are people talking about recession because it seems that the US is currently in recession?



> Probably. Sentiment is a big deal.




4. Is it because the intrinsic value of house prices appear to be inflated



> There's no evidence that's actually the case by global standards. However, as interest rates rise, more money is drawn to service debt which shrink the productive parts of the economy. This can directly lead to recession.




5. Is it because the wages of the average Australian seems to be out of whack in comparison to what one can afford these days.



> No. Even if most of us were poor, the economy could keep growing. Look at China.




Are these the main arguments here for a recession to occur?



> The definition of recession is two or more quarters of shrinking economy (i.e. GDP). In other words, when the economy is producing less stuff of value.
> 
> There are many underlying and interrelated causes to recession. In the recent U.S. case a hole bunch of money was tied up in "assets" that disappeared overnight. It's not clear that Australia has a parallel problem or not.


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## CAFA1234 (25 April 2008)

alwaysLearning said:


> From another forum someone else said this about my post. Do you agree with him?
> 
> 1. Interest rates rise
> No. Interest rates are effectively set by the central bank.




Under normal times the comment is good, but as you will know the 1% increase in RBA rates over the past year has turned into a 2% increase in mortgage rate. The standard rules no longer apply in a credit crunch.



alwaysLearning said:


> 2. Apparently it is now more difficult to obtain credit.
> No. The ability to gain credit is closely related to the liquidity of the money supply. If credit is harder to get it means that the money supply is tight.




Again under normal times correct. Not currently. Look at it this way if I'm confident that you will repay me I may lend you $50 at say 10%pa. However if  I feel that you will go bust and never repay me then it matters not what the interest rate is I'm not going to lend you any money - even if I have a $1m in the bank. The banks have been hoarding cash because of the perceived conterparty risk - e.g. they think other big banks, Bear Sterns, will go bust on them.



alwaysLearning said:


> 3. Are people talking about recession because it seems that the US is currently in recession?




The US is not technically in a recession - yet! But probably is in reality.


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## metric (25 April 2008)

to answer the question....

a labor government in fed power for 12 months....tick, tick, tick....


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## IFocus (25 April 2008)

metric said:


> to answer the question....
> 
> a labor government in fed power for 12 months....tick, tick, tick....




Yep nothing to do with current global circumstances its all because of a Labor government............sigh


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## numbercruncher (25 April 2008)

IFocus said:


> Yep nothing to do with current global circumstances its all because of a Labor government............sigh




Sad thing is thousands perhaps even a few million will blame the labor Goverment for this worldwide event, they wont see Johnny and the neocon brigade could of limited or softened the fall out, all they will see is who is driving the ship around time of impact.  - cant help human nature I guess ...


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## noco (25 April 2008)

metric said:


> to answer the question....
> 
> a labor government in fed power for 12 months....tick, tick, tick....




Some Labor states are well and truly in the "RED" and they are already talking about more income.
Have noted some Labor MP'S are starting to condition  working families already on increasing the GST. Rudd says NO, but with some pressure from the states it could happen.
Get ready people it could happen and they may try to cover it up by dangling the carrot of lower income tax.
IMHO I do not see a recession as bad as the USA, but things may get tight.


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## GreatPig (26 April 2008)

In answer to the title question, all it would take is me to buy a whole pile of stocks 

GP


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## numbercruncher (28 April 2008)

I cant find the story on the net but on the TV a min ago they said Riviera Gold coast is removing well over 100 employees based on shocking expectations going forward (or words to that effect)

Those sort of announcements are recessionary!


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## numbercruncher (29 April 2008)

Heres the story ,  ...



> ONE of the Gold Coast's largest employers, Riviera Marine, was rocked yesterday by the sacking of 136 staff brought on by a downturn in forward orders for its luxury boats.
> 
> As well, 40 external sub-contract workers were let go yesterday.
> 
> ...




http://www.goldcoast.com.au/article/2008/04/29/10546_gold-coast-top-story.html


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## numbercruncher (29 April 2008)

Joblosses seem to be snowballing ?



> ANZ Bank has flagged sending more of its estimated 4000 back-office jobs to India within months.




http://www.australianit.news.com.au/story/0,25197,23590898-15306,00.html



> US FOOD giant Campbell Arnott's is to close its southern Sydney biscuit and chocolate factory, resulting in the loss of 150 jobs




http://www.news.com.au/business/story/0,23636,23615553-31037,00.html


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## gfresh (29 April 2008)

This was over the weekend as well.. 

http://www.goldcoast.com.au/article/2008/04/26/10463_gold-coast-news.html

Large business offering dinner & cruises which caters heavily to tourists..


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## numbercruncher (1 May 2008)

They are coming thick and fast selling out jobs lately ....



> WESTPAC is expected to shift the work of up to 3000 back-room staff to overseas locations such as India over the next three years in an accelerated plan to cut costs being put together for the new chief executive, Gail Kelly.




http://business.smh.com.au/westpac-likely-to-outsource-3000-jobs/20080430-29ss.html

Might be a doozy recession if we keep at this pace eh ?


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## CAFA1234 (1 May 2008)

numbercruncher said:


> They are coming thick and fast selling out jobs lately ....
> http://business.smh.com.au/westpac-likely-to-outsource-3000-jobs/20080430-29ss.html
> Might be a doozy recession if we keep at this pace eh ?




Well, despite the thousands of millions the banks have spent on IT over the past 30 years many processes are still manual, and even then IT systems have little inter-system interaction or automated workflow. Some systems are 40 year old mainframe programs that very few people can actually code any more.

With the increased sophistication of document storage and transfer speeds it is now becoming viable to have a bank clerk in Sydney take a physical form from a punter, scan the document, and have staff in India process the work - be it plain data entry or added value processing. In reality it will be a centralized scanning centre as already set up to scan cheques and other documents. 

This will be a major 2nd wave of IT efficiencies and lead to substantial cost reductions.  Have a look round Pitt St in Sydney and see how much prime real estate is owned by CBA group - most of which is process driven back office processing.

I don't think these bank lay-offs will lead to recession by themselves, but IF an indicator of a general cut back, then watch out.  My call is that these are IT driven as opposed to recession driven, as these sorts of outsourcing take years in the planning.


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## Aussiejeff (12 January 2009)

numbercruncher said:


> Unemployment edged higher in March, be interesting to see this months.




Crikey.

Bet ya never dreamed it would get THIS bad, THIS QUICK, eh Numbs?



> January 12, 2009 11:49am
> 
> * [size=+2]Job ads fall to 'recession levels'[/size]
> * Newspaper job ads halved in 2008
> ...



http://www.news.com.au/heraldsun/story/0,21985,24900949-5005961,00.html

I wait with baited breath for SuperSwannie's SuperPositive SpinFest to sweep such nonsense under the carpet - how un-Australian of the ANZ!


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## badger41 (12 January 2009)

My first post to this forum (formerly polo41 on Investorweb), so may stuff it up.

Anyway, my comment is how helpful the media can be in all this..not!

Yesterday's WA Sunday Times (and I supect many other Murdoch newspapers around Oz), had a feature on how to survive the current downturn.

Some of their ideas:

Give up the packet of potato chips (hmm, potato grown in Australia, chips prepared, packaged, retailed in Australia. Tough luck relevant growers and employees!).

Give up a daily Mars Bar. I've been to the Mars factory in Ballarat, they have hundreds of employees. Stiff cheddar, guys.

Forget the daily Coke. Hmm, I have a relative who works for them, no doubt he'll be delighted to see this catch on. They also sell bottled water, and while I'd never buy it myself, once again those who do are helping, not hindering the economy.

Drink instant coffee, don't spend $3 at a cafe. Great news for owners and employees of cafes.

Holiday in your own home. Wonderful idea to stimulate the Australian tourism industry. Hopefully the laid-off employees can still afford their motgages so they can also holiday in their own homes.

Thanks, Australian media!

Cheers, Badger


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## Happy (12 January 2009)

badger41 said:


> Yesterday's WA Sunday Times (and I supect many other Murdoch newspapers around Oz), had a feature on how to survive the current downturn.
> 
> Cheers, Badger





In tough times if income cannot be increased/maintained we can only save on what we do not spend.

Idea not new, WA Sunday Times cannot be blamed for publishing common sense, but must agree with you that it looks bad for those who will be touched by frenzy of uncommon savings.


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## Glen48 (12 January 2009)

Give up buying newspapers


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