Saxo Bank: 50% chance of Aussie recession

By Leith van Onselen

Steen Jakobsen, chief economist at Denmark’s Saxo Bank, has given a stinging critique of the Australian economy, claiming that it is afflicted by a housing bubble and has a 50% chance of falling into recession. From Yahoo Finance:

The mining boom had inspired laziness and arrogance…

There’s dangerous levels of investment in the banking sector and housing market, and not enough investment in technology, infrastructure and education…

“What is booming in Australia is housing and banks, the two sectors that provide zero productivity and no new jobs”…

“You’re shooting yourselves in the foot as long as you continue to pile money into this mindless game of dividend yield chasing instead of believing in productivity and the future Australia”…

“You are over-unionised, you have a political system that is more concerned about rhetoric than action, you have a political inability to be accountable for anything and of course, you have a huge amount of corruption going on and I think you need to clean it up.”

Hard to disagree, except for the bit about being over-unionised, which I believe is a non-issue.

However, as I have noted previously, it is actually quite difficult for Australia to experience a “technical recession” – i.e. two consecutive quarters of negative real GDP growth.

Strong population growth of 1.5% a year means that economic activity per capita must go backwards by more than 1.5% for headline GDP growth to fall. Then there is the strong boost to export volumes that will support real GDP, even if the prices they are selling for are crashing (shrinking national income).

Nevertheless, technical recession or not, the upcoming adjustment will feel like a recession, with all important per capita incomes likely to fall and maybe per capita GDP growth as well.

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  1. Economists from outside Australia are increasingly noticing our housing bubble. What will it take for our own economists/politicians/bankers to acknowledge it? And then to do something about it?

    • As if the spineless parasites in parliament would ever consider killing the goose that laid the golden egg.

      Remember: No one could have ever seen this coming.

    • Then they’re to be increasingly told straya’s diffrent. platypus n stuff…
      full recourse loans n stuff…
      In short all the fkn bullshit that we’ve heard before will be spruiked again.

  2. he was interviewed on radio national this morning. He was actually quite sanguine on the economy over the next few years. Reckons the worst is to come in the next two quarters…then rainbows and lollipops. Sort of.

    pretty upbeat though.

    • I posted a link to Jakobsen the other day: not upbeat about next few quarters, but sees better times ahead, thinks RBA should resist calls to cut, thinks China will muddle thru and things look up a little in commodity space going forward, very optimistic re AIIB a potential for growth.

      Complacency is part of the Resources Curse I guess, resources carry the country and other sectors live off the wealth generated failing to reinvest in alternate productive enterprise.

  3. “However, as I have noted previously, it is actually quite difficult for Australia to experience a “technical recession” – i.e. two consecutive quarters of negative real GDP growth.

    Strong population growth of 1.5% a year means that economic activity per capita must go backwards by more than 1.5% for headline GDP growth to fall. Then there is the strong boost to export volumes that will support real GDP, even if the prices they are selling for are crashing (shrinking national income).”

    From another MB article:-

    “The 2015/16 capex outlook is bleak. Unless investment intentions improve sharply, total (nominal) business capex next year threatens to fall for the third consecutive year – the first time on record in at least 50 years. More worryingly, current plans suggest capex could subtract more than 1½pts off 2015/16 real GDP growth.”

    Once the pendulum swings the other way the immigration will decline significantly.

    Mining capex reversal drops 1-1.5% off GDP taking us borderline, external shock hits pushing us into recession, immigration reverses as people flee the country for greener pastures. A very plausible outcome.

      • GDP is useless, cost of living is ridiculously high. Personally I think in the next couple of years a big recession is inevitable to re-balance the economy and bring asset prices back to a level where people can afford them and have a reasonable amount of money left over to spend locally. All pain until this occurs.

      • Could Australia have a hidden recession? The outward figures don’t capture the underlying economy.

    • Forward indicators such as NZ migration stats suggest final 2014 population growth tally will be more like 1.3%, and in the absence of a sudden jobs boom (from where?) 2015 has got a good chance of having weaker population growth still.

      Also – Last Australian Recession -‘Recesssion Australia had to have’ – declared in 1990.

      Population growth in year 1990? 1.5%

      • Me thinks there has been a recession, or at least slow down, in most parts of Australia for several years nows, including real estate.

        The relationship between population growth in cities, especially Melbourne and Sydney, and (im)migration, and GDP and/or economic growth is more complicated….. A significant proportion, if not most of ‘immigrants’, are international students on temp visas (with limited work rights and no access to social security) paying whopping fees for study plus living costs, i.e. services.

        Further the definition of population changed 2006, being inflated mostly by students, and till recent years increasing numbers of working holiday visas and 457s (nor can population data be well compared internationally, depends upon definition and collection of data).

        Issue of Sydney and Melbourne centricity in any immigration and population narrative focuses upon foreign immigration, and ignores the other qualitative issues, e.g. ageing population, and domestic migration. Massive migration impact upon Melbourne and Sydney is also inter state and intra state with colonial capitals acting as financial, HR and power resource magnets to Australians, already equipped with cars and expectations, with commensurate carbon footprints.

        While Australia is generally 10 years behind the rest of the world e.g. internet speed, price and access; a solution using (potentially the NBN) to increase the attractiveness and utility of more economic regions to investors, migrants and visitors, it is not even considered(Horne’s clueless management classes in Oz?) ?

        Not unlike the profile of Socceroos and the Asian Football Cup final versus South Korea, one news story under the radar, the viewing audience internationally according to Telstra was 700 million……… yet deemed to be of no interest to Australians and business by media?

        Strange, things that are ignored or panned negatively in Australia are viewed as some of the most positive aspects of Australia from the outside…….

    • Even with the extraordinary population growth, the participation rate has been steadily falling (albeit in an expanding population) since 2011 and this fall partially offsets net growth. As well, as State governments are starting to realise, jamming more people into big cities (particularly Sydney, Melbourne and Brisbane) and not matching/exceeding that growth with efficient infrastructure solutions will ultimately act as a drag on productivity.

  4. He is right about the corruption part. I think PPPs are the new corruption . Take something the state can finance for 3% and outsource the finance in a PPP for 13% . It’s theft plain and simple .
    I would have hopes there was a push for a federal ICAC too , If I was on social media I would start a Facebook page FED ICAC now !
    The recession will come population growth or not , FMG is canary in coal mine then car industry will close followed by banking collapse.
    1890s hear we come .

    • LabrynthMEMBER

      Yes that is correct, Australia is rife with corruption, in my opinion much more worse than places such as Greece.

      In Greece the politicans are stand up guys and would be willing to die for their country. However their equivalent of a government department employee at the front desk would take money on side in the blink of an eye.

      But if you look at Australia our politicans are traitorous bastards willing to sell out the country for imo a pitiful amount of money. However, the public servants on the front desks are rule following trunchbulls who would scream murder if you offered cash to get some kind of application through.

      • +1 although I would’t necessarily agree with your comments on Greece’s politico. The best and brightest Greeks left the country long ago, while the more complacent stayed. It really isn’t until the last decade (5 yrs?) that the people have got some backbone. We should never have left.

    • Well said Rod. You don’t need to be a genius to work out the maths. However our government has such a poor record of trolling projects out maybe giving away 10% is the way to go.

    • The funny thing is that part of the reason we have no manufacturing industry is because getting rid of it was a handy way to reduce union power.

      So yeah, not surprise that we produced more when their there were more unionised workers about – there’s a lot more unionised factory workers than unionised Estate Agents or mortgage brokers.

    • union membership is a problem? really?

      Unions still exist, ergo union membership is a problem.

      There are few things these kinds of people hate more than workers with options.

  5. Meh to this country, my wealth is in USD with only a few holdings left in this country. Enjoy years of stagnation whilst this country tries to piece together a future in tech /production with no $ behind them to do so. Essentially enjoy watching Australia hang herself on a hills hoist.

    Also enjoy slicing the resource pie some more with every tom dick and manjeet new comer who actually remains in this country.

    I hope for Australias sake this bubble continues for a long enough time that she can make adequate long term investments that don’t depend on chinese stimulus.

    • How many members of State Labor Govts and the Federal Opposition have a background in, come from are there, were pre-selected because of thier Union affiliations?

      From 2007 until 2013 this country was run by the Unions. It was called the Labor Gov’t. You could not possibly be so stupid to have missed it.

      Yes, he is absolutely correct. Unions have wrecked our economy. Getting Unions and their onerous workplace laws out of our economy is one of the important tasks needed to be undertaken to avoid this recession headed our way.

      • ..and now we’re being run by the IPA through Abbott and look how that’s working out. What’s you’re point?

  6. He is totaly correct, even with his comment about being over unionised….

    Our unions are way way too poweful, we are over unionised. I don’t need statistics to tell me that only X% are unionised thats not the point. The point is that X has too much influence in anything productive!

    Either way its a shit sandwich, the very mindset of the average Australian is shit, its rotten to the core.

  7. My back of an envelope understanding is that GDP on an expenditure basis GDP(e) is:
    GDP(e) = Gross national expenditure +/- external balance of goods and services
    Gross national expenditure = (household + government) final consumption +/- (private and government) gross capital formation
    Household final consumption = market value of all goods and services including durables and including imputed rent for owner-occupied dwellings
    Gross capital formation = additions of fixed assets and land improvements +/- movement in inventories

    Once deconstructed it appears to me that household spending, capital expenditure and net exports/imports are the key drivers as the current LNP coalition cannot political embrace a keynesian helicopter drop of cash when the recession looms.

    If we believe: the wealth effect has stalled; forward capital expenditure is collapsing; commodity prices are in the toilet; and the AUD will remain stubbornly high, I can’t see how we are NOT going to enter a technical recession even with above trend population growth.

  8. “50% chance of falling into recession” sounds like my stepfather trying to help me with my maths homework as a kid. “50% chance – it’ll either happen or it won’t”