The quarter also saw the U.S. officially move into recession with revised figures showing a -0.5 per cent annualised fall in GDP for the three months ending 30 September 2008. Europe officially fell into recession during the quarter, which appears to be intensifying with the service and manufacturing index recording its lowest reading since inception in 1998. Japan also entered into a recession, while China’s economy continues to slow down with exports continuing to plummet.

Domestic economy
Australian GDP did not move into the red although it grew at just 0.1 per cent, the lowest rate for eight years. Business confidence hit a record low in November and retail sales, while still positive, are much lower than the preceding 12 months. Unemployment rose to a 12 month high of 4.4 per cent and we saw extremely aggressive interest rate cuts from the RBA (along with their overseas counterparts), which is expected to continue as they, and the government who introduced a stimulus package, try to reinvigorate the economy.

Investment markets
Australia and Europe posted the worst annual falls on record, while the U.S. had the worst fall since 1937. Emerging markets fared even worse, with China falling 65.4 per cent and India losing 58.1 per cent for the year. Movements were:

 Dec  Qtr Rolling 12 Months
 S&P 500 (U.S.A.)  -22.6%  -38.5%
 FTSE 100 (U.K.)  - 9.5  -31.3%
 MSCI Asia (Ex Japan)  -19.4%  -46.7%
 Nikkei 225 (Japan)  -21.3%  -42.1%
 ASX 200 (Aus.)  -19.1%  -41.3%

Not much more can be said that hasn’t already been discussed. So rather than dwell on the past let’s look to the future. The chart below lists previous market crashes and the subsequent recovery, which provides a timely reminder that things will turn around.




Outlook
Both the Australian and world economies will need to show signs of recovery before we start seeing strong returns in equity markets. So while a recovery may be sometime off, monetary policy and emergency responses appear to have at least calmed markets, with the focus now shifting to rebuilding business investment and consumer confidence. Hopefully this will flow through to the broader economy sooner rather than later.

Daniel Minihan, Melbourne