21 June 2009

Worse to come for Australian economy, says Harry Dent

AUSTRALIA'S sharemarket will halve in value, house prices will slump as much as 40 per cent and unemployment will climb to 10 per cent.

That's the bold prediction from economic forecaster Harry Dent, who says a bigger crash is ahead for the global economy within the next two years.

And while Australia's strong financial system, links to China and young working population have cushioned the nation from the economic turmoil so far, Mr Dent says smart investors are cashing up in preparation for "the Mother of all depressions".

"When you have to deleverage a major bubble in stocks and housing and commodities . . . it doesn't just get over with in one year with a nice stimulus program," he says.

Mr Dent, who predicted Japan's 1990s recession and the present economic crisis, yesterday began an Australian speaking tour in Brisbane.

He says a "perfect storm" is brewing where a peak in spending by baby boomers will collide with the global commodity bubble to "leave behind the next great crash".

Although Australia's All Ordinaries Index may peak at between 4500 and 5000 points by the end of this year, he says a crash in about 2011 will see it slump to about 2000 points.

He says our house prices are "among the most overvalued in the world" and will backtrack by as much as 40 per cent while unemployment – now at 5.7 per cent – will hit double digits.

"I would say Australia is not paying close enough attention to the worldwide housing bubble and banking crisis," he says.

Mr Dent scoffs at a BIS Shrapnel report, issued this week, that said home values would rise by as much as 20 per cent over the next three years.

"Look at Japan to see what happens when a generational trend finally slows your economy and a housing bubble bursts. Housing peaked in 1991 in Japan and is still down over 60 per cent from the peak 18 years later."

He believes the next boom will begin to unfold in 2023, when India will take over from China as the world's growth powerhouse.

"If I was Australian businesses and government I'd say, 'OK, China's our best customer now but we need to be cultivating India'," Mr Dent says.

"India is the one large country – that isn't dependent on just commodity cycles for exports – that could grow dramatically and urbanise."

He says India's economic strength will be underpinned by its youthful population – something that will also help make Australia one of the most resilient developed economies throughout the next two decades.

Most of the affluent world is not having enough children to support their ageing population, he says.

Japan has the oldest population in the world, followed by Italy.

However, Australia's immigration policy has ensured the local economy has stayed refreshed by young, skilled workers from overseas, helping drive innovation to "take the economy to new heights".

"Your demographics do not turn down nearly as much as Europe and the United States and Japan's did and your banking system didn't go nuts," Mr Dent says. "You will fare better but you won't come out of this unscathed."



Bron Suchecki said...

Excellent find, Kevin, and usual for mainstream media? Wonder if the sheeple are getting the message, people I speak to still seem hopeful this is just a normal recession and everything will be OK in a couple of years.

Scott said...

Hate to say it but I agree with most of what Mr Dent is predicting. With a small manufacturing base, relatively large debt, inflated asset prices and a reliance on resources things aren't looking that great over the next couple of years. In saying this over time things will get better however just hope the Government is good enough to invest/frame policy for the medium to long term future.