Australia economic decline confirmed

Whilst on the subject of Australia, we wrote about the dramatic rise in Australia’s unemployment rate in our blog.

Now this is being confirmed in other areas.  There is quire a severe credit crunch occurring.  It is either from lower demand, or it is from banks adjusting their lending criteria so that the hurdle is higher.  Either way this is going to seriously hurt the economy.

Credit is growing at the slowest rate in recorded history, 34 years.

Property prices are also off, in some areas by more than 30%, a psychological threshold for mortgage lenders.  Like they used to say in the USA, house prices have never fallen in all states before.  Well Australia’s rule of thumb is house prices have never fallen 30%.  Official data shows that they are down 8% nationally in real terms in the past 12 months. 

And the RBA has now cut the economic forecasts, but not lowered its interest rate as many expected.  The latter lack of action is simply to enable it to have big firing power should the global economy tank, with rates presently at 4.25%, one of the highest rates in the developed world.  If it has to fire the gun, then it has ample room to do so to recharge and protect the economy.

However, this action is less and less a successful tool for the RBA, as the banks grapple with rising cost of funds and pass it on to borrowers.  Just as with Asia before the Asian crisis, much of the banks borrowing is from offshore, and they are wearing the margin expansion caused by the Euro Crisis.  They are price takers in the global financial system, and despite the government guarantee, their costs of financing are rising.  Who knows what they would be without the guarantee, but the government is unlikely to allow that to be learnt.

And household borrowers in Australia have the highest debt in developed economies of 105% of GDP.   Substantially greater than the European countries about which we are all so worried.

After all, it is pretty obvious what happens if the RBA shoots that interest rate bullet and fails.  The next step is Quant Easing and who knows what future.  If there has been any benefit to UK, USA and Europe from QE, it is hard to find.  

So all you European and Brittish people wanting to move to Australia for work and sunshine, take a good look before leaping.