G 20 Leaps In

It has been a very busy week culminating in the G20 throwing another trillion dollar package at the financial crisis; trillion dollar packages are certainly in vogue at the moment. The IMF is a major recipient this time giving them a larger pot of money to bail out struggling economies, particularly those of developing nations. There were a raft of other measures too but what worries me is that it takes time for these measures to be implemented and in the meantime people are being laid off at an alarming rate. Further, insolvency firm PKF predicts that more than one in every six companies could fail by the time the recession reaches its peak - and many of those will be in the next few months.

Uncertainty as to the picture coming out of the States can be clarified by asking any one of the extra 633,000 people who lost their jobs in March. The unemployment rate has now hit a 25-year high of 8.5%. Expectations are that labour-market conditions will continue to deteriorate as job losses fuel further contractions in spending which in turn fuel further contractions in employment.

In other developments during the week both the OECD and World Bank came out with negative growth forecasts (-2.7% and -0.6% respectively) to coincide with the G20 and the Deputy governor of the RBA conceded that growth this year was likely to be negative - effectively declaring the Australian Economy to be in recession.

While retail spending slipped back 2% during the month there was a little light coming from solid dwelling approval numbers - up 7.8% in February, the biggest gain in 10 months with a 31.5% surge in apartment approvals. The hope is now that building activity could drive our economy forward.

We’ll know Tuesday afternoon but the easing call is now a little more lineball. I’m leaning very much towards there being another easing but the upward sloping shape of the longer part of the yield curve gives me cause to pause. The market is starting to price in the return of growth and inflation.