Australia is drifting into an economic storm

A Treasurer out of his depth, a weakening economy, and global instability all point to difficult times ahead for business and expose the lack of direction in Canberra.

Australia is entering a perfect storm and business and investors need to understand the local and global forces that are coming together.

On the local front we have a Treasurer who has announced a financial crisis but could offer no solutions. At a different time Joe Hockey could have been an excellent Treasurer but yesterday he looked way out of his depth. 

Most Australians know that their incomes are not going to rise and that more people are going to be put out of work or substantially underemployed. A whole range of discretionary consumer activities, ranging from sporting codes to health and education, will be affected.

Those with enterprises vulnerable to discretionary spending need to understand what is ahead. Although, it would help if the Abbott government were to rekindle the vision it promised in the election campaign (Hockey must revive Andrew Robb’s vision, December 15).

In the retail sector, the looming fall in discretionary spending comes at a time when the power of the consumer has never been greater. Buyers are able to check prices on the net before they buy, certainly on big ticket items. 

We are not talking about the end of the world. We may get a recession or just below average growth. Businesses will adapt by using new technologies to become far more efficient.

But Australians are seeing their government floundering, so, not surprisingly, they are swinging support to the opposition. According to the latest Morgan poll, ALP support is up a staggering 4 percentage points to 57.5 per cent on a two party preferred basis and the Coalition is down by the same amount to just 42.5 per cent.

What Australians are experiencing is being duplicated in most other countries, except the US.

But the US recovery is not strong enough to lead the world out of trouble.

The commodity price fall is in part due to over-production but, more importantly, is a reflection of toughening global conditions.

Veteran US economist Al Wojnilower emailed this week to remind me that the prospect for much of the non-US world is grim.

In the eurozone, there is a single currency and central bank, but fiscal and banking structures and policies differ sharply from country to country, reflecting diverse histories, cultures, and political alignments. The net result, largely reflecting German economic dominance, is a stagnant eurozone economy, particularly outside Germany, with few prospects for significant improvement.

My friend Wojnilower says the outlook for the Japanese economy is also dim, as tax increases and aggressive monetary easing are working at cross-purposes. It is as though the heating and the air-conditioning are running simultaneously. 

Perhaps the Chinese authorities can maintain a stable growth pace despite the serious economic and social problems they face, but a slowdown is a distinct possibility.

“In China, Japan, Europe and elsewhere, the long-lasting economic sluggishness, and the unwillingness and/or inability of the political system to counteract it, are creating fertile ground for demagogues to promote internal and external hate and violence,” Wojnilower says.

The fact that the Sydney siege took place on the same day that the budget crisis was announced underlines that Australia is also part of this global trend.

There will be no easy solutions for Australia given the fall in commodity prices but the Robb plan gives the nation a sense of direction currently absent from Canberra.

I would make Andrew Robb treasurer.