Will the next recession in Australia be bigger than the Great Depression?

It has been speculated that the next recession in Australia will be more severe than the Great Depression.

David Murray warns of 1890s housing crash depression

The chairman of the government’s Financial System Inquiry, former Future Fund chairman David Murray, yesterday sounded a further alarm on the housing boom, saying a crisis on the scale of the 1890s great property collapse could not be ruled out. “What people should do is look at the 1890s, which was caused by a housing land boom,” he told The Australian. “To say it won’t happen and simply ignore it is wrong.”​

https://www.macrobusiness.com.au/2017/04/david-murray-warns-of-1890s-housing-crash-depression/

In June 1999, the RBA published a report: Two Depressions, One Banking Collapse

Here are some highlights from the report:

So, what do you think?

Will the Australian economy slide into recession in the next couple of years?

Or will the Australian economy face a depression that is bigger than the Great Depression?

 

All I can say is "I hope not!"

 

David Murray is not a nobody and has said it can't be ruled out. However, "can't be ruled out" and a certainty are very far apart.

It is a risk and it is a possibility but how likely is it that it will actually happen?

While the Australian economy is struggling overall, I'm not convinced it will slide into recession. It is easy to look at the headline figures for Australia and claim that Australia (officially) has not had a recession in 25 years. Looking deeper into this claim reveals a lot more is going on.

"At the national level, we have done well in the last 25 years, sure. But while Australia overall has been famously not having a recession, economies in various states have gone to heck more than once.

Every state has had at least two "recessions" in the period Australia has avoided one"​

Is Australia heading towards recession?

While economic recovery does seem far away, it is not certain that this economic downturn will result in an Australia wide recession.

The Scope forecasting panel, made up of 26 members including the chief economists from each of the big four banks, has forecast that Australia faces a "small but non-zero" chance of a recession in the next two years, putting the odds at around one in five chance of a recession in the next two years.

Scope: One in five chance of a recession, says expert panel

 

It hinges almost entirely on what happens in China. This idea that a group of lever pullers in Martin place have any control over our economy is plain ludicrous. All they are able to influence is the relative distribution of debt within society. Our ability to take on and service that debt is dependent on factors beyond our control.

 

I agree and can add India to the mix as well.

Im pretty sure that rents went up during the great depression not that I want one enough to kickstart Perth rents.

 

How can a recession be bigger than a depression?

 

Rents may go up. But nominal prices will come down. Although who knows how nefarious central banks will get with negative interest rates. Theoretically they can purchase any security at any price.

 

Could be enough to hold onto the asset until a recovery comes about, assuming history repeats itself?

 

Starts out as a recession, gets worse, becomes a depression, gets worse, is bad as the Great Depression, gets worse, is worse than the Great Depression. It was a bit hard to explain that in the title.

That's the claim. What do you reckon?

 

I would not assume that history will repeat.

In 1987 the Australian Stock Market fell 41.8%. I'm not expecting the Australian Stock Market to fall 41.8% in a day just because it did in 1987. Scarily, all of the factors that were in place before the 1987 crash are in place now: program trading, overvaluation, illiquidity and market psychology. This is going the be devastating and wipe out billions of personal wealth. Excuse me, I'm off to write a book and make my fortune.

 

Aaaahhh, You meant

'Will the next depression be bigger than The Great Depression'

 

Yeah, no, kind of, maybe, not really.

A panel of 26 economic analyst recently tried to predict if there will be a recession in the next 2 years in Australia. They predicted a one in five chance that the Australian economy will go into a recession. So really, some analysts are calling a recession. Basically no one is predicting a depression.

Then here:

"Is the Australian Economy facing a Depression worse than the Great Depression?"

Happy now?

Calling @geoffw, could the thread title please be changed to:

Is the Australian Economy facing a Depression worse than the Great Depression?

Thank you!

 

I think our high population growth (mainly due to high rates of immigration) will make it almost impossible for Australia to fall into recession. Quite a few economists have said this, Australia's economic growth pretty much matches population growth. If it wasn't for our super high immigration rate, Australia's economy probably wouldn't have grown much at all.

On the other hand, some economists say that high immigration has caused wage growth to flat line and cause property prices to rise. If we had low immigration, then houses prices would potentially be more affordable and people would have more disposable income which would help other aspects of Australia's economy.

I'm tipping that there won't be a recession purely due to high population growth.

High immigration masks Australian economic decline

 

Just need to see what's happening in high pop growth cities (Sydney Mel and to a smaller degree Brisbane) vs those that have low pop growth eg Adelaide.
I would rather be in high pop growth areas and have a healthy supply of jobs (and high house prices) than the opposite.
As long as the external market delivers the supply , I'll work on my skills etc yo get the bigger bucks to afford the high house prices.
Its a lot lot more difficult if the local market isn't responding.

 

This is true to some degree, but not everyone is looking for employment. There will be a flood of Baby boomers retiring soon and I'm sure they are not looking for growth areas or a healthy supply of jobs. I feel your comment is age related.

 

The thing with China is...well nobody really knows what is going on? The numbers are always fudged but by how much? Then there's shadow lending and all sorts of funky things. On the other side of the coin is China's huge and developing population.

If something was to go down we would have very little warning.

That being said, people have been talking about this for the last decade and China has kept on powering on....

Who knows?

 

Yes..it is and fair point that retirees and those not looking for employment or value employment lower down the priority list will likely see things differently.

 

Is there a chance of a recession yes, will it be a depression/bigger then the Great Depression, no

I base this on the following, population growth both naturally and immigration and Australia truely being one of the most desirable destinations to live in the world, I can't see this changing anytime soon.

Why we could slip into a recession, well, frankly the economy is doing ok but not setting the world on fire, wages arnt growing, under employment is, manufacturing going, other services and/industries either going/growing their off shore present or becoming automated. My banks branch manager was telling me the other day 15 years ago he had 8 full time staff, now only 2, the rest being part time/casual as an example.

Also as mentioned numerous times, each state is at different stages and offers different things, over the next 10-20 years I see countries like India and Brazil as an example doing a China and really turning it up a notch, hopefully it triggers another mining boom on our end!

On a side note, after hearing about this space mining etc maybe Australia can get a space program happening "mining boom galactic" that should get things ticking along for a while haha!

 

Matt Barrie, CEO of Freelancer.com, has written a bit of a rant about the Australian economy. He posted it to LinkedIn (you might need to login), and it's been republished on Macrobusiness and News.com.au.

I'm a Doom and Gloomer, but I'm not convinced that it's going to be that apocalyptic if things go south. It'll be rough, but Ireland has largely recovered, and Japan survived from similar housing blowouts.

 

Rents did rise, yes - AFTER the event.

I remember reading though, that before the GD, housing expenditure (rent/mortgage) to income was approx 30%.

During the GD it fell to 2% of income. Food was 70-something %. Rents plummeted.

After the GD though, during the interwar period, rents rose to above pre GD levels in just 5 short years.