Like the lead-up to the global financial crisis a decade ago, Australia’s retail sector is in recession, the share market has peaked and employers are worried about the world economy.
The American sub-prime mortgage fiasco caused the GFC, which was the worst global downturn since the Great Depression of the 1930s.
During the lead-up to this economic calamity, George W. Bush was American president.
In 2019, another controversial Republican is in charge, with Donald Trump escalating a trade war with China, Australia’s biggest trading partner.
Like the lead-up to the global financial crisis a decade ago, Australia’s retail sector is in recession, the share market has peaked and employers are worried about the world economy (pictured is worried New York trader Brandon Barb this week)
In another worrying sign, retail trade in Australia is now worse than it was during the GFC.
The National Australia Bank’s business conditions reading for shops sank to minus 32 in July, compared with minus 27 a decade ago.
NAB chief economist Alan Oster said parts of the private sector were clearly struggling as weak wage increases discouraged consumers from spending.
‘There are parts of the sector like retail that are clearly in recession,’ he told Daily Mail Australia.
‘The July reading we put out was worse than the GFC. Wages haven’t gone up much.’
Department store chain David Jones’s South African owner Woolworths earlier this month also described Australia’s retail sector as being in recession.
Ahead of the GFC, Australia’s share market peaked in November 2007 before sliding in early 2008 as the American sub-prime crisis rocked the foundations of the world economy.
The Australian Securities Exchange didn’t surpass that record until the end of July this year.
In another worrying sign, retail trade in Australia is now worse than it was during the GFC (pictured is a store in Melbourne)
The parallels with the lead-up to the GFC
RETAIL RECESSION: A NAB business conditions survey gave the sector a score of minus 32 in July this year, compared with minus 27 in 2008
SHARES PEAK: The Australian Securities Exchange peaked in November 2007 before sliding. It did this again in July 2019 before plunging this month
UNEMPLOYMENT: Australia’s jobless rate stands at 5.2 per cent and stood at 5.3 per cent in January 2009 before rising as the GFC worsened
REPUBLICAN PRESIDENT: The United States had George W. Bush as its commander-in-chief in the lead-up to the GFC. Another controversial Republican Donald Trump is now in the White House – waging a trade war with China
GLOBAL RECESSION FEARS: Yields on 10-year US Treasury bonds fell below those of two-year governments bonds in 2007 ahead of the American economy falling into a recession. The inverted yield curve situation occurred this week, sparking a plunge on global share markets
A week later, the benchmark S&P/ASX200 lost $83billion in two days as President Trump imposed 10 per cent tariffs on the remaining $US300billion worth of Chinese consumer goods.
The Australian share market took another battering on Thursday, with the broader All Ordinaries index plunging by 2.9 per cent as $60billion was wiped from stocks in the worst day trading since February 2018.
Investors panicked after yields on 10-year US Treasury bonds fell below those of equivalent two-year American government bonds.
This situation, known as an inverted yield curve, occurred before the US went into recession from 2007 to 2009.
It also predicted the 1980, 1981, 1990 and 2001 recessions in the US.
Mr Oster said President Trump’s trade war with China wasn’t helping.
‘What you don’t like to see is a general weakening in global demand at the same time as some idiots are playing a trade war,’ he said.
Investors concerned about the share market can always choose to put their money in government bonds, where the returns are guaranteed at certain date.
This week, yields on 10-year Australian Commonwealth government bonds fell to a record-low of 0.88 per cent, a situation which didn’t occur during the GFC.
It is even lower than the Reserve Bank of Australia’s one per cent interest rate, which suggests nervous investors are set to flock to safe-haven assets, including governments bonds and gold.
Ahead of the GFC, Australia’s share market peaked in November 2007 before sliding in early 2008 as the American sub-prime crisis rocked the foundations of the world economy. Australia’s share market surpassed that peak in July 2019 before diving this month
When employers and financial markets are anxious, business confidence plummets.
The NAB barometer of this fell from plus 10 in 2007 to minus 29 by October 2008, following the collapse of 158-year American financial services firm Lehman Brothers.
The business confidence reading from Australia’s biggest commercial-lender has receded throughout 2019 and now sits at four, a level slightly below average.
ANZ head of economics David Plank said worries about the global economy could hit business confidence.
‘The real issue is whether Australian firms get spooked by what’s happening globally and so decide not to invest and employ,’ he said.
‘If firms retreat into their shell, given the uncertainties, then that will be a very negative development.’
Australia’s present unemployment rate of 5.2 per cent is eerily similar to the January 2009 jobless rate of 5.3 per cent.
A month later, it surged to 5.7 per cent and hit 5.9 per cent by June that year.
The RBA expects Australia’s jobless level to remain stable throughout 2020 and fall to five per cent by 2021.
Like the lead-up to the GFC, the United States has a polarising Republican in the White House. This time, it’s President Donald Trump who is waging a trade war with China, Australia’s biggest trading partner
Unlike the GFC, the U.S. jobless rate stands at just 3.7 per cent, which is near the lowest level since 1969.
A decade ago, it soared to 9.5 per cent peaking in June 2009 when Barack Obama was a new Democrat president.
Mr Oster said the strong fundamentals of the American economy meant 2019 was not like the lead-up to the GFC.
‘Are we going to run into a recession in the next 12 months? Very, very, very unlikely,’ he said.
Australia avoided a technical recession in 2009, thanks largely to a $42billion Labor government economic stimulus package, and hasn’t gone backwards for two consecutive quarters since mid-1991.
Digital Finance Analytics founder Martin North, an economist, said Australia could fall into a recession if the state and federal governments cut back on infrastructure spending and Chinese demand slowed for Australian iron ore, which is used to make steel.
‘Overall, there is a stronger risk than previously of a technical recession emerging but it really is dependent upon what happens internationally,’ he told Daily Mail Australia earlier this month.