Key points

• Continued uncertainty in markets.
• Is Australia in recession?
• Australia in better shape than most.

Markets over January and February

Australian and overseas equities lost ground over January and February as investors continued to be concerned over the prospect of a deepening global recession. Listed property securities saw a massive sell-off due to profit downgrades and refinancing concerns. Domestic bonds continued to rally.

Has Australia entered a recession?

All the latest economic data suggests that we have (although not officially), however it is commonly accepted that Australia is better placed than most, although there could be more bad news to come:

• Unemployment is likely to continue to rise in coming months and some forecasts have the figure at 7% by year end and 9% in 2010.
• Housing prices are expected to fall further in the face of rising unemployment.
• Company profits are also likely to fall further, as expected in a recession.
• It is expected that there will be further falls in cash rates, despite the Reserve Bank leaving rates on hold at the March meeting.

Why is Australia in better shape than most?

• In contrast with the US, Australia has a shortage of housing and therefore prices are not likely to slump to the same extent.
• Australian banks are in relatively good shape.
• The reducing A$ should provide a boost to exporters and local businesses that compete in import industries.
• The Government and RBA in recognising the threat have undertaken stimulus earlier than in past recessions and they still have room to move with cash rates still higher than overseas.