Don’t rush for the razor blades just yet!

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By Martin Conboy, President – Australian BPO Association

At the start of June I wrote this in the Sauce

“I am worried, very worried. Something is not right. I am seeing a sort of a slowdown but I can’t put my finger on it. I am hearing about softness in some markets, retail is in the doldrums but we know what’s causing that – a very strong Australian dollar, a way to avoid the GST by shopping online, and what appears to be excessive retail mark-ups. The advertising industry is in the middle of a paradigm shift as the industry transitions to online, so there is confusion and uncertainty about the way ahead. Utility prices are going up and there is wholesale confusion about the government’s carbon tax. For the first time in a long time we are seeing industrial warfare breaking out on the waterfront. The papers are filled with gloom and doom, natural disasters of every shape and type, a middle east on fire with revolution and hideous human rights issues. Greece and possibly Italy are on the verge of collapse and an American economy that is mortgaged to the hilt and then some.

On top of all of this one must not forget that we are part of the natural world and there is definitely something very wrong with the planet. I have a vision in my mind of animals in the wild sniffing the air and sensing danger and that thing that they cannot see or hear changes their behavior and they become confused and erratic.”

Fast-forward to today – In the last week the global stock markets have been well and truly routed and there is blood on the floor. There are vicious riots in London and once greed turns to fear, as has been occurring for the past week and a half, it’s everyone for himself.

In the Global Financial Crisis Mk 1. The European governments and US bailed out the banks. The (Greed is good) financiers who engineered the problems and got us into trouble in the first place got away scot-free and even managed to make bonus. Private sector debt became public (taxpayers) debt and now the question is who will bail out the governments?

The developed world has not been prepared to or not able to do the same this time. The debts are staggering, while Australia has about 7% debt to GDP ratio, America’s is 70%, the UK 80% and Japan 130%. Governments simply do not have the cash and like it or lump it the US has to rein in it’s spending, the rest of us cannot afford their lifestyles.

And for all those who worry about a soft landing for Australia?

At the time of writing the stock market in Australia has bounced back. Although we are one of the most exposed nations on earth, a small economy that relies broadly on exports and trade, we are in pretty good shape compared to Europe and the USA and thankfully we are located in the best position on earth, on the edge of Asia.

For the most part we have “decoupled” from America and our relationship with China will work in our favor, although China is tied to the US, not I might add to the degree that it was say ten years ago as it has nurtured other markets in South America and Africa. Nearly 40 per cent of China’s exports went to the US in 2001. That is down to about 20 per cent and falling as a matter of government policy. It’s an obvious strategy as two-thirds of the world’s growth already comes from outside the G-7, the ”old world” major industrialised nations.

Leaving aside the disruptive impact on financial markets and concentrating on the real economy, America’s impact on Australia is filtered through Asia – a buffer that grows stronger every year.

What’s more, Beijing knows it has to switch from exports to domestic consumption to maintain the strong economic growth it needs for social stability. That’s in the latest five-year plan. And, unlike the US,
China is actively pursuing the required economic reform instead of just talking about it.

So on balance we should be able to keep the sails tight and navigate our way through without to much damage. Fingers and toes crossed!

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