Henny Penny Peter Costello warns of ‘huge tsunami’

Business owners should forget about being relaxed and comfortable. Treasurer Peter Costello has just warned Australians that a “huge tsunami” is set to engulf the global financial markets, with China as its epicentre.

He told the Sydney Morning Herald that the US economy would weaken in the wake of the sub-prime mortgage meltdown and that the breakneck pace of growth in China could not continue.

He said that coinciding with a floating exchange rate, the Chinese economy would unleash even greater instability on global markets than the US had.

“This will be a wild ride,” he says. And when it happens it will set off a huge tsunami that will go through the world financial markets.

Australians have forgotten there is a recession every decade and that is a normal state of affairs, he says.

But while the commentators are focused on what this means to interest rates, business owners should be stopping in their tracks.

The Treasurer has just passed on a warning to Australians (which he must have got straight from Chicken Little) that they face a recession. The scenario he has painted means that consumer spending will fall, that demand will dry up, that there will be upheaval on financial markets, credit will be harder to get, the US will go into recession (it will if it weakens further) and that demand from China will weaken.

Just in case anyone is not listening? “The business cycle will turn down, no doubt about it,” he says.

Commentators are already dismissing the Chicken Little predictions of the sky falling in as just political rhetoric by a desperate man who knows that marginal seats could still be won by playing the card that the Coalition is the safe choice when there is economic chaos. But if this is the case, Costello’s comments are totally irresponsible and will backfire, causing the Coalition to lose credibility.

And if they are a true reflection of what the Coalition believes? Why hasn’t John Howard warned the economy instead of sending out Henny Penny Peter? Where is the government policy to “risk manage” this coming tsunami?

Business owners have a right to expect sound economic forecasts from the Government. And they also have the right to expect the Government is taking into account its own predictions when managing the economy.

Instead this morning we have every right to be confused – and alarmed.

Lastly, what will the market think of Henny Penny Peter’s predictions? Well if this morning is anything to go by – absolutely nothing. In fact it went up!

What do you think? Do you agree with Peter Costello’s assessment of the economy? Or is he scare-mongering? Do you feel he is being irresponsible? Send your thought to feedback@smartcompany.com.au.