The Australian economy is stabilising and the outlook appears to be clearing but are we on the road to recovery, with growth just round the next bend ?. It is now four months since the Reserve Bank lowered interest rates to 3% and interest rates have fallen a total of 4.25% since September 2008. Global economic conditions and financial markets now appear to be gradually improving after the sharp contraction and volatility of last year.

 

Importantly for Australia, the Chinese economy is again experiencing relatively robust growth. Additionally, economic conditions in Asia also appear to have improved. Even the US is showing signs that the rate of deterioration in conditions has slowed and that the economy may have reached a turning point. Only Europe appears to be stuck in recessionary economic conditions. Many now believe that the most likely outcome for the world economy over the next year or two is subdued growth.

 

Demand and production activity in our domestic economy is giving early indications of improvement and is marginally stronger than anticipated at the beginning of the year. Exports of resources have been surprisingly strong, particularly iron ore and coal, which primarily reflects demand from China (with some domestic mining companies and ports reporting they are again approaching full operating capacity).

 

Domestic consumer spending while patchy has increased during the past three months, due to the Federal Government’s stimulus package and the low interest rate environment. The positive impact of these measures is expected to continue to flow into the economy during the next four months. Both consumer and business confidence in Australia have rebounded strongly from their low points during 2008.

 

However, while many downside risks to our economy have diminished, they have not totally disappeared but we do expect growth in the next few months. Additionally, we believe that the outlook for the Australian economy continues to be subject to a high level of uncertainty, in the short term. Therefore, while domestic economic conditions are improving, we still have a significant distance to travel.

 

Ross MacMillan holds a Bachelor of Commerce (Accounting, Finance and Systems) from the University of NSW, he is a member of the Institute of Chartered Accountants, member of the Securities & Derivatives Industry Association and a fellow of the Financial Services Institute of Australia.
 

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