A mild panic swept global share markets in the last week of November, when Dubai World, with debts of $US59 billion, asked its banks for a six month moratorium on debt repayments.
It came only days after the IMF warned that thae global economy is “still highly vulnerable to shocks such as more loan losses from banks.”
It doesn’t seem that Dubai is the next big one. But two years after the crash of 2008, global financial markets remain nervous and vulnerable. The Dubai default raised fears that the next financial shock wave could come from some heavily indebted countries like Hungary and Greece.
A huge amount of toxic debt is still in the system. The German Bundesbank estimates that there is more than $US3.5 trillion of bad loans hidden in the balance sheets of the world’s banks.
In March 2009, the chairperson of the US Federal Reserve Bank, Ben Bernanke, was already saying that “green shoots” of economic revival were evident.
But growth in the US economy is weak—in the third quarter of 2009 it was revised down to 2.5 per cent. And positive GDP figures do not mean the end of job losses.
Most of the US growth came from the government funded “Cash for Clunkers” scheme that provided rebates for anyone trading in their old car.
Aside from the boost created by stimulus packages, there is no sign of any real recovery in the economy. Actual industrial production is less than it was in 2002 and 7 per cent lower than a year ago. What happens when the stimulus package ends in 2010 is anybody’s guess, but it will be harder for the US to extend its already massive debt burden.
Another 190,000 jobs were lost in the US in October. Unemployment soared to 10.2 percent, the second double-digit figure since World War II.
The number of people jobless for six months or longer stands at a record 5.6 million. The Federal Reserve Bank is projecting a “rebound” so slow it will barely dent unemployment.
The US is embarking on a “Cash for Appliances” scheme to boost growth, offering rebates of between $50-$100 to consumers buying energy efficient fridges or washing machines.
On top of this, the banking system is sick. One hundred and twenty three banks in the US have failed this year (including one that was bailed out in January!). Another 552 are listed as “problem banks”.
The weakness of the US has a global impact. While the US economy stagnates, it will limit the prospects of a recovery in China, also currently relying on government stimulus spending.
Europe is similar—the small growth, in mainland countries like France and Germany, was mostly due to “car scrappage” subsidies. But Britain is suffering its longest downturn since 1955.
In May, the Australian treasury department forecast 8.5 per cent unemployment for 2010, now revised down to 6.75 per cent.
Workers pay for crisis
The Australian economy has so far survived the crisis a little better than other developed countries, but economic growth is also weak. And a recovery in the share market is not the same thing as a recovery for workers.
Manufacturing output has fallen for the last two months. The OECD expects Australia’s economy will grow by only 0.8 per cent this calendar year.
In October, unemployment increased by 11,100 to 670,100 (5.8 per cent). But in far north Queensland for example, the decline in the construction industry has pushed the rate to 13.8 per cent.
The financial crisis has seen car workers forced into short-time working, while others take holidays. And a new study by the Workplace Research Centre at Sydney University shows that the crisis has forced a sharp shift toward casual work.
Workers who entered the job market or changed jobs in the year to May 2009 were more likely to have casual jobs without entitlements to paid leave. Thirty five per cent of those who changed jobs suffered a pay cut.
More than 200,000 workers have lost their jobs in the past year. In July, more than one million low-paid workers had their wages frozen by the Australian Fair Pay Commission.
But BHP Billiton’s Marius Kloppers received a 51 per cent pay rise to $12.2 million and Commonwealth Bank executive Ralph Norris’s salary increased 6 per cent to $9.2 million.
Any real recovery in the economy is still a long way off. And any recovery will not guarantee jobs or keep wages up with the cost of living. As the Telstra workers currently balloting for strike action are finding out, the bosses don’t give us anything without a fight.
By Ian Rintoul