The GFC. Where are we four years on?

The GFC has ground on throughout developed nations for over four years. Until recently, Australians widely believed that we had evaded its clutches. But doubts about the longevity of the resources boom now remind us that the Australian economy is not isolated from global effects.

Australia’s direct exposure to the European debt crisis is relatively small, however the feeling of uncertainty and unease evident in Australia’s business community reflects that the GFC is far from concluded. Corporate collapses are extending throughout Australia thanks to slackening demand and tight money. The retail sector is being particularly hard hit, with high profile administrations, accompanied by dozens of smaller mid-market insolvencies. Corporate profits are weakening and unemployment levels are resilient in many sectors of the economy.

On the global stage, there is no cause for celebration. This fact is underscored by the Baltic Dry Index which was first formulated nearly 200 years ago. The Baltic Dry Index tracks the cost of shipping dry freight as quoted on the Baltic Exchange. Unlike other leading economic indicators, the Baltic Dry Index tracks only actual transactions reflecting the demand for dry shipping across the globe. Shipping is a useful indicia because it reflects the movement of raw materials and manufactured goods. The higher both the consumption of raw materials and the movement of goods, the more likely that there is growth in the global economy.

The Index plummeted after the GFC hit in 2008, but it has not rebounded like Wall St. Indeed, in ended 2011 at 1700. By July 2012, it had dipped below 700.

Part of the protracted decline in the Index can be linked to underlying poor economic conditions for many of the world’s major shipping lines. This is reflected in the recent insolvency of several major shipping lines such as Korea Lines and Maritime General and the restructuring of others (such as Thorm A/S).

However, irrespective of the economic conditions in the shipping industry, the Baltic Dry Index makes it clear that no-one expects any radical change in economic conditions in the near term. Rather, the Index reflects persistent and seemingly entrenched economic malaise.

The following timeline graphically reflects a sample of the major events and conditions which are the hallmarks of both the historical and continuing economic crisis. It also depicts a sample of key insolvencies in which Henry Davis York has been engaged during this tumultuous period.