Australia: New Scenarios and Macro Economic Risk
Monday, December 21, 2009
New Scenarios
Risk Briefing's risk scenarios are potential developments that might substantially change the business operating environment over the coming two years. We analyse the drivers, provide the context and conclude with recommended action. The following scenario has been added at the latest country update.
Macro Economic Risk
The global economic recovery stalls and hurts Australian growth
Moderate probability; Moderate impact; Risk intensity = 9
There is a serious danger that as the various stimulus packages implemented globally, particularly in developed countries, are withdrawn, the recovery in the world economy will stall. Governments will try to withdraw fiscal stimulus slowly, but fiscal positions have deteriorated dramatically since the onset of the global financial crisis, as countries have had to bail out their banking sectors and run large deficits to support economic growth. Some countries are already moving to protect the sustainability of their debt levels. Households in Western economies are currently in no position to take over from the public sector as the main driver of GDP growth, since they are still in the process of repairing their balance sheets.
A slowdown in growth in developed economies would slow Australian growth, but as has been seen over the last year, Australia is not highly dependent on demand from developed economies, partly because exports make up a small proportion of GDP, but also because exports to China have become more important in recent years. The threats to China's growth rate are probably, therefore, more important to Australia's outlook. Chinese growth in 2010-11 is highly reliant on strong credit growth, but coming after the extraordinary rise in lending seen in 2009, a further expansion of credit would increase the threat of loans turning bad and of a future banking sector crisis.
A sharp slowdown in Chinese economic growth would result in a downturn in demand for and prices of Australia's commodity exports. Investors should be aware that despite Australia's strong performance during the global recession of the last year, external demand shocks still have the potential to disrupt its economy.
Source: Risk Briefing - Economic Intelligence Unit
Labels: Australia, Economy and Business
posted @ 5:05 PM,
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