19 Jan 2009

Economic denial continues

America I think has tended to accept what's happening fairly well, albeit that there is some naïve hope focused around the new president; in the UK, denial about the crisis mainly focuses on denial about how long it'll last, but there's been a move from imagining it'll be a one-year thing to a more realistic 2–3 years. In Australia, however, denial continues. The Sun Herald yesterday led with a story about how NSW was in recession – but wouldn't be for long. The state government has now retorted that NSW is not in recession at all. The point is really not whether NSW is in recession or not, but rather that sooner rather than later the entire Australian economy will be in a state of collapse. Australia was sustained through the early noughties recession by the fact that primary production remained robust, in particular with there being good harvests, and a lack of exposure to hi-tech industry. Every significant segment of the Australian economy is today rampantly exposed, however. Primary production is primarily geared towards an Asian market that is in collapse, driven as it was by production for the US market primarily. The very significant financial services sector is in itself a sick economic segment. The tourism sector is dependent on overseas visitors who can easily not come to Australia. These are the three segments where the recession will start. The construction industry has already died in the arse, and the housing bubble is due to burst any minute once job losses feed through into forced sales and repossessions. The biggest Australian secondary industry, automotive, is highly prone to recession as it's easy for people and companies not to buy new cars. The education sector will be one of the last to go, with Asian students being unable to afford to come here in such numbers, and more importantly cease to be so interested in immigrating to Australia with the Australian economy in recession. With this goes the demographic increase that is in itself a driver of the Australian economy, particularly construction.

As I argued elsewhere some years ago now (3.5 years ago, I think), the Australian economy is a house of cards in which any slipping element can make the whole thing fall over. There is no way this precarious structure can weather the current international economic maelstrom.