On the basis of yesterday’s housing finance figures, Australia might look like an island of relative economic health in a global sea of distress. Actually, if you squint your eyes and incline your head 20 degrees, it’s true — for the moment, and with the emphasis on the word “relative”.
This morning’s news from the US is that retail sales there have fallen 10% year-on-year; the fall in December was double market expectations. As a result, Wall Street stocks were crunched more than 3% and the European index fell 4.3%.
More disturbing is a report in the shipping newspaper, Lloyd’s List, that spot freight rates on the Asia-Europe trade have fallen to zero.
That is, the volume of container trade between Asia and Europe has collapsed so much that shippers are prepared to carry boxes for nothing just to keep their ships operating, in the hope of making a few pennies from bunker fees. Ambrose Evans-Pritchard in the London Telegraph says this is like an airline giving away spare seats in the hope of making money from meals.
And the latest quarterly survey from the British Chamber of Commerce confirms that the UK is in a very severe recession. Business confidence and activity readings have totally collapsed and are now below the levels of the 1991 recession.
Against all that, this morning’s headlines on the Australian economy look pretty good: new housing loans were up 1.3% in November and 7.4% year-on-year. But as housing minister Tanya Plibersek says in her interview with Business Spectator’s Isabelle Oderberg this morning: don’t get carried away.
The rise is all about first homebuyers who can’t find anything at all to rent and are being subsidised by the government to buy a house instead.
Investor loans fell 6.1% in November to be down 27.3% year-on-year. Even worse, finance for construction fell 7.4% in November and 33.1 year-on-year.
So yesterday’s finance data was actually pretty dreadful — just less so than the numbers coming out of other countries.
The cash rate will still be cut another 0.5% next month and then another 0.5% a month later (or perhaps 1% all at once next month, as the RBA did in October and December).
But at least Australian interest rates can still be cut. The Federal Reserve is out of interest rate ammunition and the Bank of England has one shot left.
And at least the Australian government has some room to move on fiscal policy. In his column this morning, Martin Wolf of the Financial Times says it is wrong that the US could not suffer like Japan, and explains why the “longevity and scale of the needed fiscal deficits are quite scary”.
It’s a devastating critique of the incoming President Barack Obama’s fiscal problems.