Australia Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	58
ISBN Number	1745-0470
Product Code	BMI03509

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Summary

No Escape From Recession

Australia's economic prospects have continued to deteriorate as a result of the global slump, and we believe that it may have already entered recession in Q408. While the economy will receive a boost from the wide range of policy measures unveiled in the first months of 2009, these are unlikely to prevent it from slipping into a more prolonged period of downturn. The slowdown will be led by falling rates of private consumption growth and investment, while low commodities prices will continue to have an adverse effect on the country's terms of trade. We have therefore revised our 2009 and 2010 growth forecasts to -1.4% and 1.2% (from 0.5% and 1.9% previously) to reflect this reality.

On the political front, the sharp deterioration of economic conditions means that policy-makers are facing a difficult year. One of the main challenges will be containing the rise of unemployment, which has been accelerating markedly since Q308 and is likely to continue doing so over the coming year.

While the Rudd administration has already adopted a series of spending measures to support the economy, these will contribute to a considerable fiscal deficit, leaving him open to accusations of mismanagement. The government is also facing pressure to press ahead with its environmental agenda, which includes the establishment an emissions trading scheme by mid-2010.

After cutting interest rates by a total of 400bps in the six months to February 2009, we expect the Reserve Bank of Australia (RBA) to trim another 125bps from the official cash rate, which would take it to a record low of 2.00%. Coupled with the Treasury's spending plans, the reductions should provide some boost to domestic demand, but probably less than the authorities are hoping. On the other hand, lower rates will relieve some pressure of Australia's households and corporations, both of which are highly indebted by international standards.

While Australia benefits from a strong business environment, its policy on inward investment is likely to be a flashpoint in the coming months as slumping commodity prices and a depreciating exchange rate leave Australian firms vulnerable to foreign acquisition. Recent investment proposals by foreign - and specifically Chinese - firms into the resource extraction sector have resulted in widespread calls for protectionism, to which the government responded by tightening the rules on foreign ownership. While we do not expect a dramatic shift in Australia's business environment, we caution that regulators may become more active in blocking deals that are perceived to be against the national interest.

Content

Executive Summary
- No Escape From Recession
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Government Priorities: Economy And Environment
- Australian policy-makers will face a challenging year in 2009 as economic conditions worsen and unemployment
- continues to rise.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Difficult Times Ahead
- Despite the determination of the Australian authorities to protect the domestic economy from the global downturn,
- we believe that it may already have entered technical recession, and that its recovery will be subdued.
- Fiscal Policy
- Deficit To Last Until 2011
- In conjunction with the Reserve Bank of Australia's rapid easing cycle, the national Treasury has, since
- September 2008, unveiled a series of special spending plans which amount to some 8% of GDP.
- Monetary Policy
- Easing To Continue, But Not Without Risks
- The RBA has been on an aggressive easing cycle since September 2008, slashing rates by a total of 400bps to
- bring the official cash rate to a record low of 3.25%.
- Mining Investment
- Resource Competition Creates Policy Quagmire
- The recent announcement by Anglo-Australian mining giant Rio Tinto that it would sell a suite of mining interests
- as well as a tranche of convertible bonds to Chinese state-owned mining group Chinalco has raised concerns
- among regulatory authorities and shareholders alike.
Chapter 3: 10-Year Forecast
- The Australian Economy To 2018
- Solid Long-Term Economic Prospects
- Beyond the current downturn, Australia's economic prospects remain solid.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political
- upheaval in China.
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
- combine to spell trouble for the financial services sector in 2009.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- Commodities
List of Tables
- TABLE: AUSTRALIA POLITICAL OVERVIEW
- TABLE: ECONOMIC ACTIVITY
- TABLE: FISCAL POLICY
- TABLE: MONETARY POLICY
- TABLE: LONG-TERM MACROECONOMIC FORECASTS
- TABLE: Banks' Leverage Ratios
- TABLE: Assets As % of Home Country GDP
- TABLE: Assets As % of Home Country GDP When Eurozone Is Considered 'Home Country'
- TABLE: Exposure As % of Total Exposure To Region
- TABLE: Banks' Foreign Exposure (US$ mn)
- TABLE: Exposure As % of National GDP
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- TABLE: ASIA, FDI ANNUAL INFLOWS
- TABLE: BMI TRADE RATINGS
- TABLE: TOP EXPORT DESTINATIONS
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH, % CHG Y-O-Y
- TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- TABLE: EMERGING MARKET EXCHANGE RATES