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Will Australia Face Recession?

By Sandy Naidu | August 5, 2008







For the past one year, there has been plenty of coverage in the media about the recession in America, doom of its housing market, job cuts etc etc. Lately though there has also been many reports in the newspapers that Australia might also face recession.

I am no ‘economy’ expert but we probably don’t have as much to fear as Americans do. Officially recession is declared when the economy faces two quarters of negative GDP. One of the main reasons for this negative GDP is reduced spending. Central Banks respond to such a scenario by reducing interest rates which in turn increases spending…

The problem in American economy at the moment is that the interest rates are already quite low (2%). So there is not much space for the Central Bank to move. The situation is quite different in Australia. Here the official interest rate is 7.25%. So there is plenty of room for the Reserve Bank to move. Plus the demand from developing nations like India and China for our resources is a positive thing for our economy.

If there is a recession common people like you and me will start feeling the pinch long before ‘recession’ is officially announced. Irrespective of whether there is a recession or not, one thing is sure, the Australian economy is slowing. We need to prepare ourselves financially - we should be in a position to face whatever happens - be it a recession or further slow down in the economy.

In the next couple of days, I am going to write another post about how we can recession proof ourselves.





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