The World Bank has issued its latest report, titled “Global Economics Prospects for 2012.” It does not contain good news for Australia.

One source reported that “Australia is in for a tough economic year after the World Bank slashed its global growth forecasts and warned there could be a worldwide recession worse than three years ago” (Australian Associated Press, January 18).

A World Bank press release indicated that “Developing countries should prepare for further downside risks, as euro area debt problems and weakening growth in several big emerging economies are dimming global growth prospects” (January 18).

In an observation that should have Australia’s mining and energy sectors worried, the press release further indicated that “Slower growth is already visible in weakening global trade and commodity prices. … Meanwhile, global prices of energy, metals and minerals, and agricultural products are down 10, 25 and 19 percent respectively since peaks in early 2011,” reflecting ongoing “[d]eclining commodity prices.”

Akin to other analysts, we have warned of the high risk to Australia’s economy with its economic eggs placed in one mineral resources basket, being marketed to one major customer—China.

Even while the land Down Under was booming along, its economy riding home on the pig’s back of the sale of its massive mineral wealth, we wrote, “The average Aussie may think the massive demand for Australia’s raw materials will bail the country out of any economic hole into which it risks sinking. On the surface that may appear to be so—as long as the demand is spread across a number of customers and as long as the strength in demand continues. Australia’s problem with this is that it has too few eggs in too few baskets” (March 20, 2008).

There’s a famous old Australian saying, “She’ll be right mate.” It reflects the attitude of generations of Aussie battlers that have had to fight drought, fire and flood for the past two centuries and come up smiling. Yet it’s one thing to be stoically optimistic in the face of adversity. It’s another thing altogether to be plain foolhardy in the face of a situation that we should have seen coming decades ago, and for which we should have been well prepared.

The problem with an overly optimistic mindset is that it tends to not prepare for unknowns. Unknowns such as the World Bank highlighted as impacting the East Asian and Pacific region, within which the island continent of Australia nestles: “While the East Asia and Pacific region recovered quickly from the March 2011 Tohoku disaster in Japan, flooding in Thailand and the turmoil in Europe have started to affect regional growth” (ibid).

Given the retracted time of recovery from natural disasters, it’s the man-made crises in the Northern Hemisphere that may pose even greater and more imminent danger to the Australian economy. The ongoing global crisis stemming from a combination of America’s massively escalating debt plus the systemic euro crisis moved Andrew Burns, manager of Global Macroeconomics and lead author of the World Bank report, to warn: “An escalation of the crisis would spare no one. Developed and developing country growth rates could fall by as much or more than in 2008/09. The importance of contingency planning cannot be stressed enough” (emphasis added).

And there’s the rub.

There’s little evidence at this stage of an Australian government commitment to a workable contingency plan should its major resource sector fall into an economic hole, let alone adjusting for the ripple effect of the American and European debt crises beginning to bite harder on the Australian economy.

James Fazzino, ceo of Australian Fertilizer company Incitec, recently highlighted the need for Australia to become less dependent on exporting its raw materials, and more oriented to utilizing them for raw materials input to home-based industry. He encouraged “a recognition that manufacturers value-add Australia’s natural resources, with an economic contribution multiplier of up to 12 times more than raw material export. With the right policy settings, Australia can enjoy the benefits of both” (Australian, Dec. 17, 2011).

Geoff Plummer, ceo of Australian steel manufacturer OneSteel, has expressed concern that “Too much reliance is being placed on commodity pricing, which at some point in time will soften.” He has warned that a failure to recognize the nation’s overdependence on income from exporting its raw materials, and insufficient attention to attracting capital to develop Australia’s own manufacturing base, “threatens the long-term success and prosperity of Australia as a nation” (ibid).

America’s real economic troubles were brought to light when its housing bubble began to pop in 2007. The popping of Australia’s own well-publicized housing bubble was delayed till the current year. Come January 2012, the true facts on the extent of Australia’s indebtedness are emerging. The housing bubble is definitely popping, placing the domestic economy at high risk.

A Morgan Stanley report shows that “Mortgage debt is by far the largest component of debt in Australia today—government debt, which is the focus of political debate, is trivial by comparison.” Yet, as Steve Keen, associate professor of economics and finance at the University of Western Sydney, observes, if the Morgan Stanley analysis is correct, of even greater concern is that “finance sector debt may be larger again than mortgage debt … since it shows Australia’s aggregate private debt ratio as almost equal to the usa’s” (Property Observer, January 11).

As per the pattern set by its Anglo-Saxon compatriots in the United States, Australia has been living well beyond its means as a nation for too long.

Aussies would do well to batten down the hatches and prepare for a period of increasing hardship akin to that currently being experienced by their northern cousins.