Australia is not in recession.

As much as I dislike the time spent speculating on such a definition, if I’m forced to pass an opinion, it’s looking like a mid cycle slowdown.

Irrespective, businesses adjust and we trade through the cycle.

Over the past 40 years, studies show that recessions are officially registered somewhere between 18 months and 22 months following the inversion of a country’s yield curve, being when the difference between the 2 year and 10 year bond yield trades into a negative percentage.

The jury is still out whether the 5 year minus 3 month yield is a better indicator to watch.

So back to the traditional 10 year minus 2 year…..and unlike the United States, the Australian yield curve is not inverted.

The red line in the chart below represents 0.00%.

The two things occurring which I think will invert this curve are;

1) an overzealous Reserve Bank of Australia hiking rates too much trying to correct the overly accommodating and subsidising government fiscal policy errors and;

2) a government which cuts off the nations (commodity supply and capacity) ‘nose to spite its own face’ by crimping production and export of gas, coal, iron ore and other minerals.

September 19, 2022

by Rob Zdravevski

Australia’s fiscal problems

I have just seen Australian political opposition leader, Tony Abbott announce the Liberal Party’s new “Real Solutions” Plan.

While such publications cover various issues ranging across healthcare, foreign policy and labour markets, this post is not about addressing any of those topics and nor do I know enough in order to offer intelligent advice, BUT from a financial perspective, this is what I think needs to change in Australia.

Housing is unaffordable and the increasing cost of residential rent is ridiculous.
Personal taxes are too high
Corporate tax rates are globally uncompetitive
The re-unionisation of industrial workers is dangerous
High wages are prohibitive
A strong Australian Dollar is nothing to cheer about
Attitudes about innovation & entrepreneurism need to improve

There is a whole generation who have never seen a recession (which was at least 20 years ago) or been fired from a job.

With the decline of the manufacturing sector, it seems like Australia will end up selling tourism experiences along with financial services and insurance.

%d bloggers like this: