Hot topics in today's finances
Confidence in confidence
Beware economic geeks bearing negative 'gifts' and remember Julie Andrews when the bad news bearers start to get you down - your country could depend on you getting this right.
Given this unusual introduction, let me explain myself.
The evidence says
Since we discovered that the Oz economy sidestepped a technical recession with the March quarter economic growth coming in as a positive 0.4%, those economists and other experts who told us we were going to hell in a hand basket, have kept warning us that the worst news is still to come.
They think, though in some cases it looks like they are hoping, that the June and September quarters will be negative, proving they were right - this borders on the tragic.
The facts remain that there is evidence that Australia could stay out of official recession territory and that unemployment won't go into 9% plus regions, which would be genuinely a tragedy.
Unemployment figure
Regular readers know I have supported the case that Australia can get away with a much smaller rise in unemployment than the doomsday merchants have predicted. Something peaking in the 7% area looks a possibility with both CommSec and Commonwealth Bank economists believing that this outcome is possible.
In fact, Craig James at CommSec thinks the jobless rate will peak before 7%.
Confidence lost
This comes as the likes of Macquarie Bank analysts say they expect major banks to underperform the broader market due to weak domestic investment, rising interest rates and unemployment. It also thinks that many of us will try to reduce our debt exposure and that will breed savers rather than consumers.
My big concern is that these 'experts' who didn't see the recent rally, and missed the credit crunch and the related slump in share prices over 2008, now want to be believed on all of this negative stuff.
These guys have lost my confidence in their judgement and as I put together the improving outlooks for China and the USA on top of some local readings on confidence, it makes me less willing to accept these prophets of doom.
Good news on China
Earlier this year I pieced together the CBA view with my positive punt that China would comeback quicker than expected along with the improving view on small business confidence from the Sensis Business Index.
This week we learnt that the World Bank downgraded the world growth outlook for 2009 from negative 1.7% to negative 2.9%. This spooked the stock market and some say triggered the biggish fall in share prices on Tuesday. That market negativity only lasted a day.
On a brighter note the World Bank actually upgraded its 2010 global forecast from 1.9% to 2.4%. But even more importantly, it bumped up its Chinese growth number for this year from 6.5% to 7.2% and this has to be good news for us.
Missing headlines
Only a week ago Sensis research boss Christena Singh revealed SME business confidence had increased by record levels over the quarter. I didn't see a newspaper lead with this survey finding. Funny that. She highlighted how business confidence had rallied strongly during the quarter after hitting a record low last quarter.
"The latest data suggests Australia's economic environment is starting to rebound, with businesses expecting their operations to perform significantly better in the next twelve months," she said.
Business confidence had almost doubled during the quarter, with the indicator up 18 percentage points to 30%. It now sits slightly below the levels recorded 12 months ago.
Confidence boost
Sure we're at levels which are about half the strength it was in August 2007 when the indicator reached 59%, but it's fair to argue that the economy is on the mend.
"Businesses are expecting conditions to continue to improve during the coming quarter, with sales predicted to be around August 2008 levels," Ms Singh explained.
Business profitability also improved during the quarter.
"Businesses are expecting further improvement in profitability, in both the coming quarter and the year ahead," she said. "In fact, they have not been so optimistic about the outlook for business profitability since May 2008."
And then this week, Sensis found that consumer confidence had jumped to a 15-month high.
Ms Singh said the consumer confidence indicator rose by a record 18 percentage points during the quarter, taking it to 39%. Six in 10 Australians are confident about their financial prospects over the next 12 months, while two in 10 are worried. "We have not seen consumer confidence this strong since February 2008," she said.
Remember Julie Andrews
Confidence is the key and unnecessary negativity could make the economy worse. I am on Julie Andrews' side when she sang: "I have confidence in confidence alone." Go confidence!
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