THE DISTILLERY: Bearing up
The end of a financial year is as good a time as any to look forward at what the next 12 months will bring. Australia's business commentators have reached a pretty consistent conclusion that our domestic prospects are solid, but the international atmosphere is ever likely to keep things subdued.
Fairfax's Madeleine Heffernan and Jane Lee speak to a handful of prominent industry faces – including OZ Minerals boss Terry Burgess and advertising supremo Harold Mitchell – and find a qualified sense of optimism.
"This month's Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was well below its long-term trend. On the flip side, its measure of current activity was well above its long-term trend. ‘The mix indicates an abrupt loss of momentum is likely over the second half of 2012,' Westpac senior economist Matthew Hassan said. Meanwhile, National Australia Bank recently raised its forecasts for the Australian economy in 2012 – to 3.1 per cent, from 2.75 per cent – following better-than-expected gross domestic product figures for the March quarter. ‘However, the near-term outlook appears weaker than it did a month ago, on the back of weak commodity prices, global concerns, euro uncertainty and a very poor construction sector,' NAB said this month. Joseph Healy, group executive, NAB Business Banking said Australia's ‘strong fundamentals support a glass half-full approach' but uncertainty in the eurozone would remain a challenge for the business sector over the next 12 months, with confidence the main casualty.”
The Australian Financial Review's Chanticleer columnist Tony Boyd says that many will be tempted to pour a glass half full following an unmistakably disappointing year.
"However, before you swig it down in anticipation of better times don't forget that the European Union is on the brink of disintegration, the United States is headed for a bizarre fiscal cliff in January, commodity prices keep falling as China slows, the Australian dollar is at parity and there is no end to the disruption caused by the internet in just about every industry except resources. While the mad optimists reckon the market has fallen far enough to justify a repeat of the 30 to 40 per cent rally which took everyone by surprise in 2009, the realists are rightly warning about the heightened uncertainty about forward earnings. Taken on face value, the Australian market as a whole represents good buying, based on the multiple of about 11.6 times one year's forward consensus earnings. But dig a bit deeper, as Macquarie strategist Tanya Branwhite has done, and you find good reasons to be cautious.”
The Australian Financial Review's Robert Guy hits a similar note to Boyd, saying that investors hoping that 2012/13 will be different to 2011/12 will probably be left disappointed.
"Confronted with a synchronised slowdown in the three pillars of the global economy – the United States, Europe and China – and tortured by Europe's seemingly intractable debt crisis, fragile market sentiment is likely to remain enslaved to the drip feed of data and the actions of central bankers and politicians. Macro influences are likely to remain the main driver of the market's fortunes as investors look to policymakers to do more to support economic growth, allay fears over burgeoning sovereign debt levels and underwrite weak banks. Scanning the near-term horizon, there appears to be little to cheer investors.”
And The Australian's economics editor, David Uren, offers a broader perspective. The Australian economy is in as good a shape as we could really hope. But he also reaches essentially the same conclusion.
"The Australian economy has survived a year of living dangerously in remarkably good shape, but the year ahead looks even more perilous. It is not just Europe, although that remains the source of the greatest fear for a rerun of the Lehman crisis. Economic growth is softening around the world, from the US and Japan to China, India and Brazil. It is only in Europe that economies are actually in recession and even there several economies, including those of Germany, The Netherlands and possibly France, are achieving some growth. There have been no big corporate failures. While the world economy is still expanding, the past few months have brought a realisation that there is no recovery to normal growth in prospect.”
Still on economic matters, with little expectation for another interest rate cut, Fairfax's Ross Gittins asks whether the Reserve Bank is still that relevant, when you consider the power the banks now exude over the rates they charge.
Elsewhere, Fairfax's ever charming Jessica Irvine runs us through some of the findings about the cost of renting that's emerged from Australia's latest five-year census.
Meanwhile, Fairfax's Adele Ferguson says Australian company boards must take some of the responsibility for their recent performance, rather than excusing themselves with environment, cost pressures and the European debt crisis.
This big company news out of Friday was of course the news of a prospective David Jones takeover offer. Fairfax's Elizabeth Knight and Malcolm Maiden both sense something fishy about this proposal from EB Private Equity.
In other company news, The Australian's John Durie says the News Corp split, which will officially not include News Limited with its stake in pay TV, makes sense for the company.
And finally, Fairfax's Michael West trails the banks of collapsed childcare group ABC Learning, looking at the $100 million they managed to recoup before the Eddy Groves vehicles went under, an action that's now being contested in court.