Economic catastrophe:where does Australia stand?

Australia seems to be in little immediate danger from the global financial catastrophe, that the Bank of International settlements fears.

The BIS prediction is certainly grim.

“The facts suggest that the magnitude of problems to be faced could be much greater than many now perceive,” it says.

“…while difficult to predict, their interaction does appear to point to a deeper and more protracted global downturn than the consensus view seems to expect,” it adds.

Tough words, indeed.

However, as Chris Richardson of Access Economics points out, Australia’s outlook appears to be brighter than that of many other countries.

Demand for our resources from China and India is still strong.

That is reflected very clearly, in two sets of data, that were released yesterday.

The Reserve Bank’s index of commodity prices jumped by 7.9 per cent, in June alone, with coal, iron ore and wheat prices all rising.

The Statistician also reported sharp rises in engineering construction activity in Australia in the March quarter of this year.

The future, of course, remains unpredictable.

And Australia certainly would be hurt, in the longer term, if the troubled US economy does collapse.

The Bank of International Settlements certainly takes that risk seriously.

Especially, as it is critical of US authorities for bailing out major institutions, like Bear Stearns, whose reckless behaviour certainly deserved censure.

But there are also strong arguments to be put, for the kind of action the Fed did take.

That could, still, avert a global recession, or worse.

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Wall Street traders still nervous

Wall Street staged a tentative recovery overnight, even though oil prices briefly hit a new record above $US143.

At one stage, close to the end of the day’s trading 20 of the Dow’s 30 components had advanced.

But the weak recovery petered out towards the end of the day – and the Dow Jones industrial index finished just 3.5 points up at 11,350.01.

Trading in the shares of Merck and Verison had led the way up.

But General Motors and Ford shares kept falling.

The S&P 500 closed 1.62 points up at 1,280.00.
But the tech-heavy NASDAQ Composite index fell 22.65 points to close at 2,292.98
Earlier in the day, oil futures had climbed to a new peak of $US143.67 a barrel, before easing to close at $US140.50 a barrel

The financial sector continued to perform poorly on Wall Street overnight.

US bank stocks fell for the third successive day overnight.

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Would an extra $52 a week help?

Kevin Rudd and Wayne Swan have a message for you.

They would like to remind you that the average Australian family will be $52 a week better off from today.

That will flow from measures the government announced in its May budget.

Mr Rudd said the package will include help with the costs Australia’s parents face educating their children.

So the Treasurer is urging you to keep your receipts,  to validate these expenses.

Up to $750, that is, for primary school students and $1,500 for secondary students.

Produce those receipts at tax time, and you will get a 50 per cent deduction on those expenses.

Nice.

But that’s not all.

The child care rebate also rises from 30 to 50 per cent from today.

That will take it to a ceiling of $7,500.

All that,  and tax cuts as well.

Naturally, the government has its own reasons for reminding you of all this.

It took a belting in the Gippsland by-election last weekend, as angry voters let it know what they thought of rising petrol prices and interest rates.

And the opposition can’t wait for the next by-election, which is likely to be in the safe Liberal seat of Mayo, held by the former foreign minister, Alexander Downer.

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Rate review today

Mark your diaries.

The Reserve Bank board meets again today, to review interest rates.

The best guess, at present, seems to be that it will not increase them.

But it will certainly not cut them, either.

The 12 rate rises, announced so far, have certainly had the desired effect.

That is slowing the broad Australian economy.

And serious gas troubles, in Western Australia, probably will shave at least a little off the resources boom, that is expected later this year.

Detailed figures, that the Reserve Bank released yesterday, also suggest that rates are likely to be kept on hold.

They show that growth in housing credit, taken out both by private buyers and investors has eased, over the past year.

Business credit growth rates have also eased, from the very high levels seen late last year and early this year.

But they are still high.

Broad money growth, too,  is running at very high levels, though, touching 17 per cent in May.

That, alone, though, is not likely to cause the Reserve Bank to raise rates.

The outcome of the board’s meeting should be known about 2pm.

Watch this space

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