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As much of Australia continues to enjoy that quadrennial "feel good factor" delivered by the Olympics (or will Beijing produce only a "feel pretty good factor"?), I'm going to be a bit of a killjoy and focus on what is making many people here feel bad. The uncertain state of the economy.

It is not even 18 months since the then Prime Minister John Howard made the optimistic pronouncement: "Working families in Australia have never been better off." But if Kevin Rudd made such a statement today, howls of laughter would quickly be followed by the foot-steps of men in white coats.

Back in March, 2007, Mr Howard no doubt believed his upbeat assessment to be true, and not entirely without justification. The economy had just enjoyed its 16th year of uninterrupted growth, and performed more strongly than other OECD countries (the annual Aussie rate of growth was 3.6%, compared to the OECD average of 2.5%).

With 75% of growth in the world economy coming from Asian and other developing economies, Australia's resources boom appeared permanent and immutable. The country's terms of trade were at their highest in 50 years.

Perhaps John Howard made the mistake of looking too far west, to the Pilbara and other mining centres in booming Western Australian. Instead, he should have been keeping a closer eye on the western suburbs of Sydney, the home of the famed "Howard battlers", the hard-working, aspirational working class voters whose desertion from Labor underpinned a decade of conservative rule.

But even as Mr Howard delivered his Macmillanesque statement, the "battlers" were already grappling with rising prices and more costly borrowing. On the eve of the federal election in November, interest rates rose for the 10th time since 2002.

Since then things have got worse. Petrol costs have increased by 18% since this time last year, and household costs, such as mortgages and rental payments, rose by 62% between 2001 and 2006. Overall, the cost of living has risen by 4.5% in the past financial year, according to the Bureau of Statistics. The stock market, meanwhile, is down 26% since November, when it reached its peak.

"So many Australians feel overwhelmed by their housing costs and are unsure whether they really are much better off today than at the beginning of the decade," a study from the National Centre for Social and Modelling reported last month.

Arguably, Australia is still better placed than most other western economies to ride out the global economic storm. Corporate profits are in good shape, and Western Australia continues to enjoy the China-fuelled boom (although a slowing global demand for Chinese goods could have a knock-on effect).

Moreover, Australia has not yet recorded one quarter of negative growth - let alone the two consecutive quarters of negative growth required for economists to start deploying the "r" word, recession. The Reserve Bank predicts growth will slow to 2%, the economy's most listless performance since the early 1990s.

Still, parts of the country - like much of the drought-hit bush and outback, along with much of the east - may already have entered a "mental recession".

So two questions: does all this gloomy economic talk ring true? And, if so, how badly is Australia hurting?

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