Batten down the hatches: Australia heading for recession?


Deutsche Bank thinks Australia is in danger of slipping into recession next year.

As reported by Bloomberg, Adam Boyton, chief economist for Australia at Deutsche Bank said (with our emphasis)…

The terms of trade will slump 15 percent in the final three months of 2012 from a year before, a magnitude that presaged a recession in three of the five times it’s happened in the past half century.

Boyton previously worked at the nation’s Treasury, which may or may not make him qualified to make such predictions. If one thing remains true about economic predictions, it’s that most will be wrong.

The mining boom has protected this lucky country from the worst of the global recession. The average Aussie, although they think they might be doing it tough, has rarely had it so good. In case you need reminding, take a look at your flat screen TV(s), your modern car, your big house, and your iDevices.

Still, Boyton has a point. The mining boom may or may not be over, but it certainly has levelled out. Riggers earning $220,000 for a company providing construction and maintenance services to the resources industry just might be a thing of the past, and probably rightly so.

On the plus side, Australian interest rates are amongst the highest in the world, giving the Reserve Bank plenty of ammunition to slash them even further should our economy grind to a halt.

As ever, it’s a double-edged sword. The mortgage belt might fancy mortgage rates of 4%, but retirees, who rely on term deposits to supplement their income, won’t look forward to earning 1.5% on their money.

As ever, the key to survival in tough economic times is to live within your financial means.

Pay off your non-mortgage debt. Maintain and grow your savings pot. Invest surplus cash in the share market, starting with stable blue chip stocks like Woolworths (ASX: WOW), Telstra (ASX: TLS) and Woodside Petroleum (ASX: WPL).

Don’t panic, but don’t be complacent. Australia has been through an astonishing 21 recession-free years, but the luck surely can’t last forever.

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Bruce Jackson is The Motley Fool’s General Manager. He has an interest in Woolworths and Telstra. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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