Over 60 countries around the world expect to record lower output in 2010 than during 2008 with over 37,000 Australian firms expecting to face financial stress during the next 12 months, a new Dun & Bradstreet report reveals.
The Risk 2010 report shows the economic recovery occurring next year will not bring every country out of financial stress, with about half of the 132 economies surveyed expected to record lower output in 2010 than in 2008, with Australia also expected to record real GDP of 1.8% – down from the 2.5% recorded in 2008.
Additionally, about 13 recessions are predicted for 2010 with four economies set to remain flat. Unemployment is set to grow to 6.1% with a drop to 6% expected in 2011. D&B chief executive Christine Christian said in a statement the outlook is a step up from 2009 but that challenges will still remain.
“Australia has fared relatively well throughout the past two years, a time when many other nations felt the full brunt of the global crisis,” she said. “Over recent months we have seen signs that the economic recovery is underway – this has increased the confidence levels of executives as we head towards the New Year.”
“However, risk is still prevalent. This means that if Australian firms are to deliver on this confidence, they must maintain a vigilant focus on the fundamentals of sound business management. Otherwise, businesses could find themselves as another statistic on the failed business register.”
Additionally, the report claims businesses still are vulnerable to financial stress, and that business failures climbed 20.5% during the economic recovery of 2001 after the dotcom bust, followed by bankruptcies.
“Australia is a low risk environment for business investment. However, as the rest of the developed world recovers global competition will intensify. Therefore, Australia’s regulators will need to ensure that their focus on reform and strong economic management continues,” Christian said.
But despite the bad news, the Westpac-Melbourne Institute leading index of economic activity, which predicts the pace of economic activity three to nine months in the future, has moved up from a negative reading to 6.7% in October – above the long-term trend of 3.1%.
Westpac economist Bill Evans said in a statement he was surprised by the pace of the recovery.
“That will be supported by much stronger momentum in consumer spending, dwelling construction and business investment,” he said.
That sentiment has carried over to the banking sector, with Westpac chairman Ted Evans saying in a statement the bank is positioned to perform well next year. He also defended the bank’s decision to raise its variable mortgage interest rate by 45 basis points two weeks ago – 20 points over the RBA’s move.
“A properly functioning financial system, with strong banks that can stand on their own feet, requires that banks adjust interest rates in line with market pressures. That is what Westpac did on December 1,” Evans said in a statement.
“Competition in the markets will ensure that power is not abused; and as has been demonstrated again in recent weeks, such competition is alive and well in Australia.”
But he also said lenders have absorbed some of the costs of the higher rate rise.
“With interest rates now clearly on the rise again, both at home and abroad, there are limits to how long we could continue to absorb these costs without weakening our bank, the Australian financial system and, hence, the Australian economy.”
“We would do no favours to anyone by offering mortgages at rates that we know to be unsustainable.”
Government eases foreign ownership laws for Qantas, stocks lower
The Government is preparing to ease foreign ownership laws for Qantas, but transport minister Anthony Albanese has said the company will still remain 51% Australian owned.
“We want to maintain the 51% ownership provisions, we want to maintain the strict provisions that are there for location and the nature of the board,” Albanese said.
“We will retain the basic restriction of 49% on foreign investment in Australian international airlines to ensure they remain majority Australian controlled.”
“This will increase Qantas’ ability to compete for capital and to take opportunities to form strategic partnerships in an increasingly globalised industry.”
The Australian sharemarket has opened flat today after disappointing results on Wall Street, where investors grew nervous due to worries about inflationary pressures on the economy.
The benchmark S&P/ASX200 index was up 10 points or 0.22% to 4683.9 at 12.00 AEST, while the Australian dollar also fell to US90c.
Commonwealth Bank shares rose 0.7% to $53.07, while NAB shares also rose by 0.3% to $28.06. Westpac gained 0.8% to $23.98, as ANZ rose 0.5% to $21.54.
Lend Lease named as preferred bidder for ING assets
Lend Lease has been named as the preferred bidder for a number of ING Retail Property Fund’s assets.
“Lend Lease is pleased to announce that a consortium including Lend Lease managed funds has been appointed preferred bidder to acquire the 14 assets of the $1.4 billion ING Retail Property Fund,” Lend Lease said in a statement to the ASX.
The company said the acquisition is still subject to negotiation, but that completion is expected over the next six weeks. It expects to contribute up to 20% of the funds required for the purchase.
Explosive manufacturer Orica has said its financial performance for the first two months of this financial year area ahead of last year’s performance.
“This gives us the confidence to reaffirm our guidance, issued at the full year, that we expect continued earnings growth in 2010,” managing director Graeme Liebelt said at the company’s annual general meeting.
In the US, Wall Street stocks fell off 14-month highs over worries of inflation. A cautious outlook from GE for 2010 also caused some volatility in the market.
The Dow Jones industrial average dropped 49.05 points, or 0.47%, to end at 10,452.00.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
