Australian economy facing bumpy ride
The Australian economy could be in for a bumpy ride in 2011 and go close to having a hard landing, according to new analysis released by Credit Suisse.
Looking at economic conditions, the analysis said that monetary conditions were tight and effective borrowing rates were above long-term average levels, with the banks tightening lending standards while the exchange rate is overvalued.
The Credit Suisse analysis then utilised the company’s monetary conditions index and said that it suggested that growth in gross domestic product (GDP) could slow sharply this calendar year “and the economy could experience a near hard landing”.
The analysis said consumption in Australia had been weak over the past six months, with retail sales growth now at the bottom end of its historical range, even though jobs growth had been quite solid and consumer confidence was elevated.
It said part of the reason why retail sales growth had come off was that house price inflation was slowing, reducing scope for home equity withdrawal.
“Also, rate hikes are subtracting from discretionary cash flow,” it said.
Notwithstanding this negativity, it said that business capital expenditure had been improving, especially in the resources sector.
AUTHOR
Mike Taylor
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