Business people around the world are now bracing themselves for tougher times in the wake of the triple-headed downturn – in Europe, China and the US.
In such times forward bookings in major international hotels are an advanced indicator of business activity. They have fallen sharply in Australia and it looks like a world trend.
Unless there is a surprise change in the outlook more labour shedding is ahead in hospitality.
All of this is bad news for global stock markets, which look horribly like they are about to deepen their losses. However, there are signs that traders may have overbought the US dollar, which could spark a temporary rebound later in the week.
Everyone is now expecting the Reserve Bank to cut interest rates but the dwelling auction clearance rate in Sydney fell at the weekend. It improved slightly in Melbourne.
The expectation of lower interest rates is having no effect on demand for new houses because people are frightened about their employment. And they have every reason to be scared, because sales and profits of so many non-mining Australian enterprises are falling so labour shedding must intensify.
However, the lower interest rates will cut the spending of retirees with savings. In addition, the fall in the stock market lifts savings rates as people try to cover their loss of stock market value.
In these circumstances, lower interest rates do not stimulate activity – as the Americans have discovered. However, the lower dollar will help many enterprises, although some hard pressed retailers will have trouble passing on higher import purchase costs.
On the government front the rising stocks of iron ore in China make further iron ore price cuts likely. And that confirms what we knew at budget time – that the government’s expected revenue from the mineral resources tax is a mirage.
The government is in effective deficit, not surplus. Many mining projects are set to be mothballed (A mining boom cut-off is coming, May 21).
And of course on top of this the government is introducing a carbon tax, which is a disguised way of hitting the middle class and transferring money to lower income people. To undertake such a foolhardy policy at this time makes us a global laughing stock (Federal Budget 2012: Ripping into middle Australia, May 8).
The reason why confidence is evaporating is that it is clear the European leaders have no idea how to repair the damaged European banking system, which is such a big funder of world trade and investment.
Our banks are now genuinely frightened that the European international wholesale tap will be shut down in the next few months, as happened in the global financial crisis.
Our banks are in much better shape than in 2008 but that won’t prevent a tightening of money on the local market.
The long-term American revival will come not by money printing but by a massive investment program to switch from oil and coal to US gas (Combustible questions for American gas, June 1).
China’s revival comes if and when leaders abandon their current caution and stimulate. Europe looks too hard.