Are we drowning in our own self-induced pessimism?
Any overview of economic growth over the last 200 years shows the cyclical nature of growth and how each recession is inevitably followed by a recovery. The reasons for the recessions are usually clear, either a natural calamity or human excess. The reasons for recovery are less obvious. At some point, confidence is restored and the economy returns to growth. The recovery is much more about psychological factors than economic concepts.
In Australia, we seem to have reached a point where our pessimistic outlook is tenaciously trying to hold out against fundamentally good economic news. We are trying to wrest another recession from the jaws of an economic recovery. As one economic commentator observed, “the economy is growing well, unemployment is near historic lows, inflation is low and real wages are rising yet the media is full of endless gloom.” This is also reflected in the recently published indicator of consumer sentiment, which improved in the June quarter, but is only just moving out of the pessimism level we would expect in recessionary times.
Much of the blame for the entrenched level of pessimism must be laid at the feet of the media. Two recent examples demonstrate how determined the media is to maintain the flow of bad news. The first was the so-called LIBOR scandal, where British banks were found to have been manipulating market rates. The headline announced the scandal as “bigger than the global financial crisis” which was patently nonsense. However the story grabbed world attention and the financial markets staggered under the weight of yet another crisis in banking. The story quickly faded from the front pages, but the damage to confidence was already done. The second example was the ongoing pessimistic speculation about the downturn in Chinese levels of production in the June quarter. When the figures were finally released production grew at 11%, Chinese retail sales grew at 14% and the economy overall grew at 7.5%. This was another piece of economic “good news” which was quickly relegated to the back pages.
In spite of the media and the pervading sense of gloom, the underlying economic recovery is occurring. The economy will drag a reluctant media, kicking and screaming, into a sustained recovery.
At an anecdotal level this is also being reflected in the Byron Bay property market. Buyers are continuing to look for good properties in Byron Bay. They have moved from the cautious “just looking” phase characteristic of last year, to a more active “I will buy at the right price.” This trend seems to have strengthened in the last month, and in the absence of any global upsets, is going to strengthen further.