Australia is facing the "storm" of recession but is strongly placed to weather the worst of any economic downturn, according to a QUT financial economist.
Dr David Willis, a financial economist in the QUT Business School, warned the volatility of the global economy made an economic downturn a "sure thing in the short to medium term."
"As deflation takes hold in Europe, the UK and US, the market worries about asset growth rates and a sell-off of shares and fixed income will occur," Dr Willis said.
"We can see this in the volatility in trading that has occurred over the last few weeks, as the share market is a forward predictor of economic activity in the real economy.
"A key indicator of a downturn is long-term interest rate futures. In a normal economy they show an upward curve but in a recessionary environment they head down as they are now. While this is not a perfect predictor, it has a very good track record."
Dr Willis said it was unknown at this stage whether the slowdown in economic activity would lead to a "recession or just a correction", but it did not signal another Global Financial Crisis (GFC).
"This is not another GFC as the banks in Australia and in the US are well capitalised so can weather this storm," he said.
"We're not talking about a systemic failure as we were with the banking crisis, but a common variety recession, the sort we seem to have forgotten occurs from time to time."
The impact of the downturn would largely depend on the actions of policy makers, Dr Willis said.
"The Australian dollar is falling which will insulate us to a point, and our export growth will add to GDP numbers, but it may not feel that way with rising unemployment and bad news from around the world leading to consumers tightening their belts," he said.
"A downturn is coming but, even if it is a recession, it is not a GFC, and will be shallower and shorter than the previous financial crisis.
"Nevertheless, policy makers must be ready for what is coming because their response will play a big role in how quickly and effectively our economy can bounce back."
Media contact:
Rob Kidd, QUT Media, 07 3138 1841, rj.kidd@qut.edu.au
After hours, Rose Trapnell, 0407 585 901
