18 January 2012

Our bad habits put us at risk

AUSTRALIA has a heightened chance of slipping into a recession this year after using up most of its ammunition to dodge the global downturn caused by the 2009 recession, economists warn.

JP Morgan chief economist Stephen Walters said our good fortune had left us with bad habits making us more vulnerable.

While Europe and the US had been forced to make long-term economic changes in recent years, Australia still has high levels of household debt and inflated house prices.

He also warned our present positive exposure to China could quickly turn if the Asian economy stumbled.

"The problem is that Australia still carries the same vulnerabilities as it did four years ago," Mr Walters said. "Most other countries went through a recession, which flushes out weaknesses.

"The vulnerabilities we have don't make a recession more likely, but it means a recession would be more painful than if we had shaken off our excesses now."

After 22 years of growth, Mr Walters warned a cyclical recession was expected within the next decade.

He said the RBA should use its monetary policies to target the disparity between house prices and income and push households to continue paying down their debts.

Mr Walters said Australia was right to reap the benefits of exports to China while it could, but should not view Asia as a permanent cash cow.

Source Article: Herald Sun http://bit.ly/y8xX7B