economic update
by Glenn Meekin, Finance Contractor
The global financial system has entered into a new, more worrying phase as the US credit crisis has evolved in recent weeks. Market liquidity is declining and this is having further negative impacts on confidence. For Australia, the biggest impact has been seen on the equity and money markets, however Australian stocks have not performed as badly as many global financials.

Employment growth has slowed but remains solid. Annual growth in employment was 2.3% YOY in August 2008, down from a recent peak of 3.0% growth in February 2008. The unemployment rate remains low, falling back to 4.1% in August from 4.35% in July, due mainly to a fall in the participation rate to 65.2% from 65.3%.

Despite the bearish equity markets, the Australian banking sector in aggregate remains robust and unlike the banking and finance industry in the US, continues to make profits. Furthermore, the ratio of Australian banks’ non-performing assets to total assets remains low at just 0.4% at June 2008 and the ratio of non-performing housing loans to total loans is also only 0.4%. This is low by international standards.

The decline in the Australian equity market and the uncertainty in the global financial markets is can be expected to impact on consumer and business confidence over the coming months. The may result in a deferral of business investment and hiring decisions.

The Australian dollar has been volatile, falling sharply in recent weeks against the Euro and Yen. The Reserve Bank of Australia’s decision to reduce the cash rate to 7.0% whilst welcomed by consumers at home, has contributed to this decline.

Sources: NAB Capital “Australia at a Glance” 15 September 2008, ANZ Australian Economics Weekly – 19 September 2008