Our beloved Prime Minister Kevin Rudd has finally used the R word to describe Australia’s current economic situation:
The worst global economic recession in 75 years means it’s inevitable that Australia will be dragged into recession,
…
The challenge for government is to cushion the impact of recession on business and jobs, through the actions we take, through economic stimulus strategy.
Up until now Rudd has been referring to the situation using terms such as economic tough times and making reference that Australia is not immune to the global economic climate. Whilst this would seem a much of muchness when it comes to describing Australia’s current economic position it is actually a powerful rhetorical tool. Some particular words love to wreck havoc with the stock exchange and recession is one of the bigger ones (with regulation being my all time favourite). Looking back to December last year the Federal Reserve Bank of America officially announced that America had slumped into a recession. This was then accompanied by a huge rush in stock sell-offs and had the Dow Jones finishing almost 8% lower, its fourth worst drop in history. Official figures using certain words can really get people in the mood to sell.
Whilst Rudd’s announcement has done little to stir the market it does put people on notice that when the next quarterly figures come out they’ll probably be negative and this puts us into the technical definition of a recession. In reality this starts to get the execs thinking more about cost cutting, improving their returns on investment and adopting new strategies to cope with economic climate. In essence Rudd is attempting to pre-empt an announcement by the Reserve Bank so that people start thinking about it now, rather then panicking when the R word is used officially.
Whilst it’s a good move overall for Rudd there’s probably a few more things he could do in order to gear people up for the coming recession. His current focus of stimulating the economy through handouts, a few infrastructure projects and supporting small businesses will provide a decent amount of short to medium term boost to the economy. However there is little in the package about longer term investments or adjustments to the banking sector, and rightly so. After the initial down turn businesses will start to pick themselves up off the floor again, and the economy should start turning itself over as per normal. Rudd is doing a good job of keeping in everyone’s good graces and this will do well for him come election time. I’d be really interested to see what policies he brings forth when he doesn’t have to contend with the world falling down around him.
