Is Australia heading for recession?
Published 02-DEC-2015 11:32 A.M.
2 minute read
Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.
In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.
The below articles were written under our previous business model. We have kept these articles online here for your reference.
Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.
Click Here to View Latest Articles
According to director Mike Cornips of options educator TradersCircle, Australia could be heading towards a recession.
As taxation revenue for all levels of Government was released on 1 December 2015 by the Australia Bureau of Statistics (ABS), Cornips says it highlights the difficulty the current Government has in trying to make any impact on the budget deficit the figures are concerning.
“Taxation revenue decreased 14.7% to $101,324m from $118,761m in the June quarter 2015. General government sector expenses exceeded revenue resulting in a GFS net operating balance of –$22,911m. The GFS net lending(+)/borrowing(–) position for the general government sector was –$23,860m,” the ABS said in a statement.
The chart below (from 1990) shows the annual growth in taxation revenue.
“The previous falls in growth towards zero coincided with the economic downturns of 1990 (the recession we had to have: Paul Keating), 2000-01 and the GFC in 2007,” Cornips says. “According to former Greek finance minister, Yanis Varoufakis, the weakness in the domestic economy and the weakness in the Chinese economy means Australia will have a recession.”
Also released yesterday was Australia’s terms of trade (ToT) figures which fell another 2.3% for the quarter and 10.9% for the year, the lowest for 9 years. ToT figures reflect the prices Australia receives for exports relative to imports.
In terms of the quarterly Current Account figures for September, this is determined by adding the balance of goods and services together with paying interest and dividends on past accumulated deficits (called Net Primary Income).
“The balance on goods and services improved from a $10.9 billion deficit to a $7.4 billion deficit for the September quarter (seasonally adjusted),” Cornips says. “Net Primary Income (paying interest and dividends on $922 Billion) amounted to a $10 Billion deficit for the September quarter. The total Current Account deficit for the September quarter was $18 Billion, an improvement from a $20.5 Billion deficit, but a deficit nevertheless. Because all deficits need to be paid for, our International Investment Position increased from $904 Billion to $922 Billion.
“Domestically State and Federal Governments must cover deficit spending, with figures showing that the market value of Government debt securities increasing $55 Billion for the year, up until 31 October 2015, for a total issued of $649 Billion.”
One of the main risks of our ever increasing deficit in Australia’s International Investment Position and our Governments’ domestic debt position is a downgrade in Australia’s Sovereign risk rating. This will flow directly into our Banks’ cost of debt funding.
“Australia’s Government will seek ways to reduce the deficit (contracting demand), with an economy possibly moving into a recession, together with the pressure of rising funding costs to fund past massive International deficits, certainly highlights the headwinds Australia faces over the coming year.”
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.