Take it from the horses mouth: we are all going to be poorer and feel poorer over the next couple of years, according to the second most senior bloke at the Reserve Bank of Australia, Deputy Governor Rick Battellino.
But at the same time, he believes there’s a reasonable chance we could escape an actual recession, despite forecasts of such a slump by the likes of Goldman Sachs JBWere and JP Morgan in the past week or so.
The National Australia Bank believes growth will slow, but not contract, but unemployment will rise to 6% over the next couple of years and the present budget surplus of around $22 billion, will become a deficit of around $10 billion in the same period of time.
In a speech to a Sydney conference today Mr Battellino said Australia was going through “uncertain financial times at present which is leading some to question whether the period of prosperity that has been running for almost two decades has come to an end.”
The next couple of years will be noticeably more subdued than the past five. We should not be surprised by this as the income and wealth generated over the past five years were simply extraordinary.
While nobody can predict accurately all that lies ahead, it is important not to become too pessimistic because, fundamentally, household finances and the economy more generally remain in good shape. The main problem that had built up – inflation – is manageable and is being dealt with.
By definition, the economy must grow at a below average pace for some of the time. These periods provide the economy with the breathing space to sustain the expansion. There is no reason to assume that the next year or two will not do the same.”
Australia managed to sidestep the 2001 global recession. Can it do that again?.” he asked.
That is certainly what we are aiming for, and there is nothing in the data to date to suggest that we are off track.
But the economy is being affected by powerful forces from different directions, and it is unclear what the net effect will be. The impact of global developments is particularly uncertain.
We also have to recognise that the task of managing the economy this time will be more difficult than in 2001 because we are starting with a bigger inflation overhang.
We will have a slightly better idea with the release tomorrow of the private credit figures for September by the RBA, and by the contents of the statement after Tuesday’s Melbourne Cup rate discussions at the monthly board meeting.
Mr Battellino’s choice of venue for his speech, the 7th National Bankruptcy Conference in Sydney, might have been sending us the wrong signal: was there an unconscious message in the choice of occasion with which to make a speech about an update on “household finances”?
His appearance was rare, coming so close to a RBA rate setting board meeting on Tuesday. Another senior RBA official, financial markets boss, Guy Debelle, is due to give a speech in Melbourne tomorrow updating us on how the bank’s market operations have been going during the most volatile period seen for decades. There’s nothing to be read into the two public appearances by senior bank officials before a rate meeting, but it is unusual in the current context of intense speculation about a rate cut next Tuesday.
Mr Battellinos’s speech seems to have been warming us up for the inevitable outcome of the slowing local and global economy.