How will US recession influence Australia?

alokin · Intermediate Crude Joined: Aug 24, 2007 Posts: 692

It is very likely that the US will slip into a recession this year.
Maybe it will be a depression.
The UK has equal signs, but (still) not the rest of Europe.
(This is strange how these English-speaking countries stick together!)

Any predictions for Australia?
Depth, high mortgages, bursting housing bubble?
Higher energy prices? Higher food prices?
Shortages?

Until now everything looks quite good. (Maybe I only lack information, no real newspapers and no real news in TV either, no "Der Spiegel", "Zeit"...)

Back to the topic: a recession/depression in the US would lead to unemployment / poverty in China. Fuel prices will ease, but maybe many still won't be able to buy it as it would still be around $80/barrel. What will happens next and how will be the outcome in Australia?

Kingcoal

Micki

That is really a billion dollar question.
The big question I guess will be what happens to Asian demand for commodities if/when US (officially) goes into recession.

One of my favorite analysts, Peter Schiff, suggests Asia should hold up reasonably well or at least recover quickly.
This because internal demand is set to offset the drop in demand from US.

Even there I guess the Chinese sharemarket is the wildcard that can throw things around.

As long as the commodity boom remains Aussie dollar should remain reasonably strong.
If RBA further increases interest rates I would be surprised if we didn't see dollar to dollar with US$.
This would to some extent offset higher energy costs, but at some point exporters will be badly hurt unless they hedge or sell in AUD.

Housing I think will slow down as affordability keeps going down.
From what I can see the upper end of the market seems to have slowed down the last year. i.e. $1M houses haven't come down in price by they don't turn around particularly quickly.
Stronger dollar also makes these investments more expensive to foreigners.

Besides from this I expect retail/discretionary and tourism to also slow down as spending goes more towards basic necessities.

Finally, more signs are suggesting that oil demand will continue to grow during 08 whilst supply will drop or be flat.
Minor incidents like geopolitical, weather etc can have major impact on price and we may see more volatility as markets react, over-react, correct.

Independently of scenario I expect gold and silver to continue to appreciate. Either as inflation/stagflation drives prices up or as safe harbour as counter party risks increase (or both).

Anyone have any good feel for what could make the RBA change stance and lower interest rates??
I think it will take some hard figures showing increasing unemployment etc.
_________________
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In suburbia
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In suburbia
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kokoda · Heavy Crude Joined: Aug 24, 2006 Posts: 420

Tourism will be down. The falling US dollar won't help our exports. On the other hand we do most of our business with Asia these days ... particularly China.

I think the days when it was said that "if the US coughs the rest of the world catches a cold" could be over. Certainly we will hurt a little but I don't think the economy will crash and burn.

alokin · Intermediate Crude Joined: Aug 24, 2007 Posts: 692

Australia has lots of mining and that's the bulk of exports (as far as I know). We nearly have no manufacturing (what is a problem if oil price goes up), there is wheat production as well, which is not bad in times of wheat shortages, but there is drought and soil salination.
I guess we're better off than the US and Europe in a economic crisis.
And you can live much cheaper in Australia than elsewhere, especially in Europe. No heating, low energy prices, lots of second hand shops, cheap cars, more relaxed, less taxes, less health insurance)