We may be out of the woods sooner than you think, says Peter Switzer.
Beware economists and newspaper experts bearing forecasts, especially negative ones. And let the warning extend to prime ministers and federal treasurers who are worried that they may be blamed for the economic mess we find ourselves in. As someone who has heaped praise on the Rudd Government’s and the Reserve Bank’s responses to the global financial crisis (GFC) and its impacts on our economy, share prices and our clients’ wealth, I feel well-placed to issue Messrs Rudd and Swan with a timely piece of advice: Back off! A day doesn’t go by without these two referring to the severity of the GFC and what it has delivered upon us. I have seen this many times before, where a new government does not want to be held accountable for the sins of a previous team.
Hawke and Keating had Fraser’s recession to deal with. Howard and Costello had Keating’s black hole of debt related to accumulated deficits linked to the 1990s recession. And now the new kids on the block have a recession whose seeds were sown in the Howard years, where deregulation went too far — the USA. In reality, the previous team was quite responsible — just look at the strength of our banks which are now in the top 20 safest in the world.
But similarly, it is impossible to blame Rudd and Swan for the current economic downturn. However, if they keep shoving negativity down the throats of small business and consumers they will end up as accessories after the fact. I recently made the point on Sky Business one morning that we get it – the Rudd Government is not to blame. So now get on with leading the country out of this slump.
Of course, the media generally has been making the recovery harder by running with every bad news story imaginable. It is as though they refuse to accept that an alternative better story could emerge for Australia. One newspaper recently ran with the story that typified what I am talking about. “The recession will throw a million people into unemployment, according to Treasury forecasts to be included in the Federal Budget in two weeks,” it said.
Treasury was forecasting a 0.5 per cent contraction in the economy in 2009-10, taking unemployment to mid- to high-8 per cent levels. Currently, the jobless number is around 650,000 with unemployment at 5.7 per cent. Growth is expected next year and Treasury actually predicts a rapid rebound. By the way, the International Monetary Fund (IMF) thinks unemployment will peak at 7.8 per cent. And you have to be careful of governments taking worst-case scenarios ahead of a Budget so they can look better when the worst outcome does not materialise.
If these guys are right, then the million people out of work is a negative exaggeration we did not need! In case your newspaper missed this one, the latest National Australia Bank quarterly survey showed its business confidence index had a 7-point improvement on the December quarter, though it was still in negative territory at minus 24 points for the March quarter. Against this, business expectations were very grim. The survey reported: “Clearly business is expecting further significant deterioration in economic activity.”
And why wouldn’t they be, given what the Government and newspapers have been printing? For example, Chris Richardson, of Access Economics, comes out with a more negative view on the recession and unemployment and the negative news dominates the headlines. Has anyone seen forecasts by Commonwealth Bank’s Craig James, in the newspapers? I recently did a road show with him and this is what his economic crystal ball is telling him:
• Economic growth for 2009 at 0.5 percent
• Economic growth for 2010 at 1.5-2 percent
• Unemployment for 2009 at 6-6.5 percent
• Unemployment for 2010 at 5.75-6.25 percent!
That’s right, this is what he thinks could happen, and it is a damn site more positive and uplifting for business owners and consumers than the usual negative, confidence- crushing crap we are always being served up by the media. Don’t get me wrong, I’m not saying James is right, but I am hoping he is. I recently interviewed Michael Workman from the Commonwealth Bank’s economics team and they do their numbers independent of James.
They were a little more negative, but still wildly more positive than other economists. I am a realist and I know we are not out of the woods yet; but we’re a lot closer to the edge of the woods where the bulls are grazing in the meadows getting ready for a run. Australia could have a much milder recession than the negative experts are tipping and a quicker-than-expected sharemarket recovery as well as a global economic comeback could make that more achievable.
Peter Switzer is the founder of Switzer Financial Services, an accounting, business coaching and financial planning practice – www.switzer.com..au
