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50% Chances of Australia Falling Into Recession

50% Chances of Australia  Falling Into Recession50% Chances of Australia  Falling Into Recession

Australia has a high risk of slumping into recession, with commodity prices diving, public finances deteriorating and unemployment rising. After a record 24 straight years of economic expansion, has the lucky country’s luck finally run out?

From having at one point a stronger currency and lower unemployment rate than the United States, the tables have rapidly turned for the land “Down Under” following the end of the China-driven mining boom, NewsNow reported.

Analysts have put the chances of a recession in the world’s 12th-largest economy as high as 50 percent, hit by a downturn in the nation’s largest trading partner, China, which has slashed prices of key exports such as coal and iron ore.

Strategist Gerard Minack, “a well-known bear,” told the Sydney Morning Herald in March that the bursting of a housing bubble would mark the end of the good times for Australia.

“There’s a 25 to 33 percent chance of a recession in the next 12 to 18 months,” Minack said, with only “okay” employment data preventing him from calling a recession “outright.”

Goldman Sachs chief economist Tim Toohey reportedly agreed, predicting a one-in-three chance of recession in 2016. Bank of America Merrill Lynch chief economist, Saul Eslake, put the odds at “below 25 percent,” saying it would be the “first one that was not preceded by tight monetary policy.”

Already, the resource-rich state of Queensland has revealed that it fell into recession in 2014 for only the third time in the past 30 years, hit by lower prices of coal and other commodities. Its iron ore-rich counterpart, Western Australia, has seen growth slump to just two percent in fiscal 2016, its lowest rate since the recession of 1990.

 Deficit Forecasted

On May 12, Australian Treasurer Joe Hockey told the nation the cupboard was bare, with previous hopes of a fiscal surplus pushed back to the end of the decade and likely even later. From a projected budget surplus of A$4 billion ($3.12 billion) by 2017, the government now expects a deficit of A$35 billion in the coming fiscal year and another A$26 billion a year later, while the jobless rate is seen climbing to 6.5 percent.

Hockey blamed drought, the “largest fall in our terms of trade in half a century” and a weaker than expected global recovery for wiping out A$90 billion in forecast government revenue.

Describing it as a “soft, cuddlier budget,” ANZ Research noted that structural reforms had been postponed, with any further economic deterioration likely to leave government finances stuck in the red for some time.

 

Financialtribune.com