Fear the recession

Pay heed everyone. There are real signs of a global slowdown.

Pay heed everyone. There are real signs of a global slowdown. Even our Treasurer is wiping the smirk off as he warns of the possibility of a recession in the light of global reconstruction.

Some of the early signs that Costello is watching this week include the giant Caterpillar corporation warning that the US economy would be “near to or even in recession” next year, leading to nearly 5% reduction in its share price. 

Shares fell in Australia, Indonesia, Singapore and Taiwan. Philippine shares rose after police ruled out that a bomb attack caused last Friday’s shopping mall blast.

Japanese banking shares fell after a report that US investment company Merrill Lynch would post third-quarter losses larger than forecast.

In China the Bank of Communications fell 2.1% on profit taking after chalking up a 19.4% gain on Tuesday. China Construction Bank rose 1.9% and PetroChina, the most heavily traded stock on the exchange, fell 0.2%.

South Korean shares also dropped as the bellwether chipmakers flounder and the Taiwanese electronic sector also reports rough weather ahead.

As chief executive of MFS Investment Management said this week: “While the domestic economy remains strong, the Australian sharemarket may no longer be able to shrug off a large part of the volatility experienced by offshore markets and is vulnerable to any persistent short term downward trend. With enduring US weakness now raising questions over the continuing notable strength of the global economy, it may be a time to focus on capital preservation short term.”

Costello and Opposition spokesman Wayne Swan should be asked very serious questions about the impact of the larger than expected weakness in the US due to the sub-prime credit downsize and the flaring drought driven fire season. Twenty of the most marginal seats in this country have higher than average “soft” voters who are more prone to panic attacks, anxiety, stress and major mood swings.

If Labor is going to be elected, maybe Kevin Rudd should try to give these marginal seats the sense of security that Costello clearly knows cannot last longer than the end of this month.

If the RBA does break with tradition by imposing a significant rate rise in an election period for the first time, small business owners of all sizes should shorten their terms of trade, reduce the heavy hand of their lending manager and focus on gaining market entry to the new regions of China.

And if your business has been aligned to the coastal Chinese cities, start to look elsewhere in China for new deal opportunities as the major realignment of power begins to reduce the gap between rich and poor provinces.

To read more Colin Benjamin blogs, click here.