How the favourite’s faring. The money has been coming for an interest rate cut in this afternoon’s big event. The Crikey Interest Rate Indicator now has the probability of the Reserve Bank reducing official rates by 0.25 at just over 60%

Housing prices could do with it. Australian Bureau of Statistics figures on housing prices suggest that market would benefit from a rate cut. Preliminary estimates out this morning show the price index for established houses for the weighted average of the eight capital cities decreased 1.2% in the September quarter 2011.

The capital city indexes decreased in Melbourne (-1.7%), Brisbane (-2.5%), Perth (-1.3%), Sydney (-0.2%), Adelaide (-0.9%), Canberra (-2.0%), Hobart (-1.0%) and Darwin (-0.4%).

The longer term picture looks like this:

An unsettling referendum. The short-term economic future of the developed world will now be in the votes of Greeks after the country’s Prime Minister decided to put the latest austerity proposals to a referendum. And getting people to vote “yes” for higher unemployment and reduced wages will be quite an achievement.

Which makes the gloomiest forecast  by the OECD more likely than when it was prepared a few days ago. OECD Secretary-General Angel Gurría overnight put out a statement outlining three possible scenarios.

  • Uncertainties regarding the short-term economic outlook have risen dramatically in recent months. A number of events, notably related to the euro area debt crisis and fiscal policy in the United States, are likely to dominate economic developments in the coming two years. In an “events-free” scenario and in the absence of comprehensive policy action to resolve current problems, real GDP is projected to grow by about 3.9% this year, 3.8% in 2012 and 4.6% in 2013 on average in G20 countries. This average masks a wide divergence among country groupings, and emerging-market economies are much more buoyant, despite some softening. In the euro area, a marked slowdown with patches of mild negative growth is likely. Growth is also projected to remain weak in the United States, with a gradual pick-up from 2012 towards the end of the projection period. Unemployment is set to remain high in many advanced countries.
  • A better upside scenario can materialise if the policy measures that were announced at the Euro Summit of 26 October are implemented promptly and forcefully. These measures go in the right direction and could help restore confidence and create positive feed-back effects that could trigger a scenario of stronger growth.
  •  In contrast, the outlook would be gloomier if the commitments made by EU Leaders fail to restore confidence and a disorderly sovereign debt situation were to occur in the euro area with contagion to other countries, and/or if fiscal policy turned out to be excessively tight in the United States. OECD analysis suggests that a deterioration of financial conditions of the magnitude observed during the global crisis (between the latter half of 2007 and the first quarter of 2009) could lead to a drop in the level of GDP in some of the major OECD economies of up to 5% by the first half of 2013.

A drop in the level of GDP in some of the major OECD economies of up to 5% by the first half of 2013 is not something to look forward to with any pleasure!

Peter Fray

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