The World Bank released its report recently on their forecasts for the World economy in 2012. You can see the executive summary here which is definitely worth reading – http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1322593305595/8287139-1326374900917/ExecutiveSummary_GEPJan2012_Eng.pdf
We need to keep in mind that the World Bank is often wrong of course. Pretty much most economists have been terrible at forecasting since 2007. After all in 2007 all forecasts pretty much were for continue strong growth throughout the economy.
So what does this herald for the Australian property market in 2012? No doubt 2012 is not going top be a great year. Notwithstanding what happens in the real economy, consumer confidence in general is so pessimistic that I can not see a turn around of any great significance happening this year. Consumers are going through a sustained cycle of fiscal consolidation – they are focused on saving and not spending.
I read an interesting article on LCD screens recently. Apparently there is not one single manufacturer of LCD screens that is currently profitable in the World. For me this was an interesting point, as we all know just how hard our retailers have been pushing LCD TV’s etc over the past year or so. So one one hand we have manufacturers not making money and on the other we have retailers also who generally are either not making money or who are operating on increasingly slim margins. So I think we need to ask ourselves what would happen if the World did enter GFC 2? What could these manufacturers and retailers do to try and stiumulate demand from consumers to combat the economic slowdown and the further reduction in consumer confidence that results? Not a lot I would say.
I think in general this is the true underlying risk of a second GFC. Everyone, whether it is developing countries like China, developed countries such as the EU and US, and even at a micro-economic level individual manufacturers and retailers, have less wiggle room. They have less reserves, they have less margin, they have pretty much less of everything that they could use to combat the economic slowdown.
What does this actually mean? It means a high posibility of sustained slowdown with a slow recovery.