The world is not out of the darkness just yet

Australia posted the fastest rate of economic growth for the past 3 years when GDP numbers for the June quarter came out last week, to show further how important mining and China are to the flow of money in the lucky country.
Lucky that is that we are not shackled to the major developed economies of the northern hemisphere which seem to be running a race back to the bottom based on recent trends.
Capital markets initially took good news from the announcement that US GDP figures for the June Quarter came in at a better than expected 1.6%. But this was after the expectations for the figure had been revised downwards. The US economy is now limping after recovering to 5% real GDP growth late last year followed by nearly 4% in the first quarter of 2010. Roll the trend forward based on the June information and it is clear very fast action is needed to pull that economy up before it goes into reverse gear. Recent news about sluggish housing sales has been balanced against better unemployment, but at least consumers are spending a little more than they were this time last year.
This is now a nightmare for Barack Obama who is looking to avert a collapse in support for his party at looming half-term elections. He touched hearts as the costly mission in Iraq was formally ended, but the country is still waiting for his economic miracle to get cracking. The US Federal Reserve stands ready to plough money into another stimulus effort, but just where will it work is the puzzle.
Europe doesn’t quite look as grim as does the US, with the Eurozone economies moving ahead at just 1% per annum. But rises in consumer prices are slowing and the 12-year high of unemployment isn’t getting any weaker. The financial cracks from the risks of Greece and Portugal also remain real for bankers.
Japan last week jumped to try and pump-prime certain sectors of its economy with a paltry $12bn stimulus package – paltry that is by standards set by K Rudd when he was the resident of the Lodge. Japan’s economy has stalled with a chronic deflation which has seen consumer prices fall for the year and a half. The yen is over-priced and at a 15-year peak, and the country suffers from the other problem of political leaders bailing from the top job every few months. That amounts to instability on all fronts that hardly fills business with much confidence.
The aftermath of the GFC is proving to be a watershed time for the policy makers of these big developed economies, which are finding out the hard way that some major remodelling is needed. The cancer that erupted from the asset “bubbles” and follow-up stimulus monies were clearly sheltering some unviable sectors of these economies. Kick-starts to growth remain elusive.
What does it mean for us? Well as far as trade activity goes we need to hope like hell that the engine room of Chinese demand doesn’t fall off a cliff. Apart from that fairly major issue, the other uncertainty affecting trade is what will happen to the value of the $A on the sidelines of another developed world slowdown. Lucky we have a vibrant Asia to sell to!