The pitfalls in talking up the economy

How much will go back to Treasury?

The spending strategy in 2009 will follow totally different lines from that of earlier financial crises.

It has been suggested that the local industries to benefit most from this expected spending splurge will include retail, hospitality, tourism and car sales.

Let us follow the money trail.

Imports now dominate the retail trade with miniscule local content. True, it will provide jobs for the sales staff to sell us the fully imported cars, appliances and gadgets as well as high imported content in many other items. Imports are increasingly dominant in our supermarkets, displacing local food, beverages and other household items. Check out the fish, meats, fruit and juices to name but a few.

Hospitality is increasingly reliant on imported content ranging from kitchen equipment, foods, beverages, food product additives, furniture, table cloths, cutlery, glassware, crockery, lighting, visual and audio, etc.

Local tourism will be facing cut throat discounting from Asian centres also suffering from the crisis and, as we have seen before, at prices that Australia tourism cannot match. A strong Australian dollar offers cheaper overseas travel and the money leaves Australia. It also deters incoming foreign tourism. A falling dollar works in reverse.

Where does the money go?

What it all comes down to is spend, spend, and spend and a simple matter of mathematics. Money flows out to pay for imported content and profits to credit providers. The residual local content stays here.

Not to be forgotten is the downturn in resource exports that will increase unemployment, reduce state and federal revenues and increase the looming deficit. Add to that the decline in our car industry exports.

What appears to have been overlooked is the fact that China's steel and metals industries have been in decline since the beginning of 2008 and rapidly worsening ever since. Unemployment in China was on the rise early 2008 but escalated rapidly throughout the year, triggering increasing civil unrest.

What else can we spend the money on in Australia? New cars, boats, houses, beach homes, improvements?

Consumers considering those options will face more stringent credit conditions and deposits in a falling asset market. Not all of that spending will stay in Australia either. New car purchases range from the fully imported to high imported content in locally assembled vehicles, as well as accessories and parts for improvement and maintenance.

The flight of salesmen is sending a clear message on the near and possible medium term future for these sectors.