Michael O'Sullivan News

At a number of levels 2011 has certainly
been a roller coaster year.
Economically, we began 2011 with a
great deal of optimism. There was a
belief that the worst of the GFC was
behind us, and investors and businesses
were feeling confident of an imminent
economic recovery.
However the tragedy of several natural
disasters – both close to home and
overseas in the early part of the
year slowed the speed of economic
recovery. Domestically it was the
cyclones and floods in Queensland,
whilst internationally the devastating
earthquake and tsunami in Japan added
further to national debt and pressured
the pace of recovery.
European uncertainty has dominated
most of the year with stock markets
around the globe remaining cautious
over the national debt held by several
European nations.
Mid year the US had to raise its national
debt ceiling in order to service its public
spending commitments, and then had its
“AAA” rating lowered to “AA+” by rating
agency Standard & Poor’s.
Difference between 2008 and
now
While it’s easy to draw comparisons
between 2008 and 2011, in many ways
the situation is fundamentally different.
In 2008 the issues were largely focused
on US private sector liquidity and
solvency, which threatened to spread
worldwide. The depth of the problem
was also unknown, leading to the fear
of severe recession or even a global
depression.
In 2011 however, the issues are focused
on government debt (especially in
Europe), and a much slower than
expected US economic recovery. Overall
the liquidity levels and solvency of the
private sector are now mainly sound as
the non-government sectors worldwide
has deleveraged. In many ways the
question now is not “will it recover”, but
“when and at what pace”.
Meanwhile, China continues to be
a beacon in the global economy. In
particular countries like Australia are
benefitting from China’s unprecedented
demand for mining resources. While
China is not necessarily immune from
any global economic downturn, the
outlook for China continues to be much
more positive than compared to other
countries with the International Monetary
Fund (IMF) forecasting growth of 9.5% in
2011 and 9.0% in 2012 (compared
to 1.5% in the US, 1.6% in the Euro
zone and 1.8% in Australia for 2011)
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Australia
The success of Australia’s resource
sector has led to higher terms of
trade and a rising Australian dollar,
which has itself negatively impacted
sectors such as manufacturing and
tourism. However investment by the
mining sector in employment and
capital programs has been credited
as being one of the contributing
factors to Australia coming through
the GFC so well, and is likely
to continue to assist Australia’s
economic growth in the near future.
In fact, the widely held view is that
the Australian economy is in a better
position than other countries, largely
due to:
• our terms of trade at a record high;
• historically low levels of employment
with approximately 95 out of every
100 people seeking work in a job;
• a relatively stable financial system
and our sovereign credit respected
globally; and
• the capacity for macroeconomic
policy to respond sensibly to events,
appropriately guided by wellestablished frameworks.
Housing market update
While the housing market continues
to display some softness, to date
price corrections are far from dramatic
and certainly not displaying signs of a
housing bubble.
Dear investors
PROVIDENTtimes
I S S U E 2 7 Q U A R T E R 4 2 0 1 1
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