Thoughts on ways to improve the management of professional services firms

Wednesday, September 21, 2011

Global economic gloom

The release of the latest IMF global economic projections makes for gloomy reading.

In Australia, the latest minutes of the Reserve Bank's Monetary Policy Committee provides a useful summary of the overall domestic and global economic position as seen by the Bank.

It seems pretty clear that the IMF and others face considerable forecasting difficulties. That should not come as a surprise, for all the econometric models they use actually rely on a degree of stability that is presently lacking.

As it was during the GFC, Australia continues to be a lucky country. This is reflected in the Euromoney nomination of Treasurer Wayne Swan as the world's best finance minister. However, the country is still vulnerable at two levels.

The first is simply its reliance on certain markets and especially China and Japan. If they sneeze, Australia may catch a cold. The second is the high level of domestic household debt. This is manageable in a growing economy, but will become an increasing drag should economic conditions worse.

Like many, I have been mulling over what all this means. I thought that it might be helpful, at least to me, if I did some of the same type of very basic economic analysis that I did during the GFC. You know, the simple stuff based on first principles. That's a better guide than the more complex analysis at a time of change.     

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