A prominent economist has issued a warning that Australia will enter into a recession in 2015 and warned, “nothing can be done to stop it”. Chief economist at Saxo Bank Steen Jakobsen said that the conclusion of the mining boom combined with falling commodity prices and a slowdown in the Chinese economy would drag the Australian economy into recession.
‘It’s too late, the wheels are in motion. How you deal with low growth, low inflation and a negative environment is what will define Australia over the next two to three years,’ Jakobsen said.
He also noted that “as the mining investment boom has slowed, the only sector to step up and take its place has been housing, which has created a housing bubble and the Reserve Bank now has the difficult task of stimulating the economy while reining in the housing bubble”
Referring to Interest rates, he said the RBA “will probably need to cut the cash rate to two per cent, but possibly as low as 1.5 per cent, as a result”.
“The RBA will also need to make changes to regulations on lending in order to control the housing sector”, Mr Jakobsen said.
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Australians have Invested heavily in the housing market, and policies allowing people to invest in property using their superannuation were “very wrong”, he said.
“The intention was to create a diversified portfolio but when society becomes so lopsided, as it is in Australia now with dwellings being the biggest growth factor in the economy – you have to think ahead, you cannot continue just to build houses, you need productivity to go with it,” Mr Jakobsen said.
“If you compare Australia to other countries, that’s why it’s standing still, because the industries you have are all very low productivity-driven ones.”
Talking about the need to diversify its economy away from mining, Mr Jakobsen says the key is “education, education, education”, “turning Australia into a research based economy and developing the information technology sector”.
Ending on an optimistic note he believes that the recession which will hit in early 2015 will “kick start” a lot of positive processes.”
Australia is planning to sign a free-trade deal with China worth at least $18 billion over 10 years. This comes after Mr Abbott announced China would host the G20 summit in 2016.
To kick off the agreement, 85 per cent of all Australian exports will enter China without tariffs and is expected to rise to 93 per cent within four years and 95 per cent after 10 years.
The deal should benefit most exporters in Australia, as China is Australia’s biggest trading partner with bilateral trade reaching $150 billion last year.
The Australian share market finished slightly higher on Friday, ending a four-day losing streak.
To finish off the week the S&P/ASX200 index was up 11.6 points, or 0.21 per cent, higher to 5,454.3,while the All Ordinaries index was up 10.3 points, or 0.19 per cent, to 5,433.8, according to preliminary figures.
The Australian dollar was able to finish the week on a positive note at US87.46 cents bucking the trend against a round of positive economic data from the US and more talk from the RBA about the currency being overvalued.
On Friday US retail sales Came in at 0.3% against a consensus of 0.2% and The Reuters/Michigan Consumer Sentiment Index which is an accurate measure of consumer confidence showed a reading of 89.4 against analysts’ expectations of 87.5.
In most cases, we would see a spike in the US dollar after such news but on Friday, this wasn’t the case noted analysts at Fibogroup.
RBA assistant governor Christopher Kent noted that intervention to bring down the “too high” exchange rate was not off the table.
“He also mentioned the Australian dollar is, ” above most estimates of its fundamental value, particularly given the substantial declines in commodity prices over the course of this year”.
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