The banks expect 2009 to be a disaster

THE experts who manage the world economy have written off this year as a disaster they can do little about.

Now their strategy is to stabilise the crisis, and build towards some sort of recovery next year.

“Everybody knows that 2009 is going to be a very tough year. It is going to be (an) extraordinarily tough first quarter,” Canada’s Reserve Bank governor Mark Carney told the World Economic Forum in Davos.

The Davos message of gloom for 2009 has been absorbed by Australian bank chief executives who return home braced for a very rough ride over the rest of the year.

The top bankers fly back to a nation coming to grips with the news that Australia will join the rest of the industrialised world in recession this year.

The Rudd government plans to offer tax cuts for low-income earners despite a $50 billion blackhole in tax revenue caused by the crisis. The government also plans to offer incentives to businesses who keep staff.

The bad news for Australia is the unexpected rise of financial protectionism as banks become part or fully nationalised in the US and Europe. The result is that they are pulling capital out of foreign markets.

That leaves Australia exposed because it has to import capital and its banks have to tap foreign capital markets because of our low savings rate.

The next policy move will be a further budget stimulus in countries including the US and Australia.

The IMF predicts the G20 nations will produce a fiscal stimulus equal to 1.5 per cent of their gross national product.

But that won’t stop the recession this year.

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