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At last the doomsayers can proclaim ‘I told you so’, with the Australian economy having recorded its first quarter of negative growth.
These ‘told you so’ economists say there is no need to wait for the second quarter of negative growth – we are already in a recession.
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This sort of talk is of course hugely damaging to what is already faltering confidence among businesses and consumers.
We all rely heavily on the economic outlook when it comes to making personal and corporate decisions. And so we turn to the experts. Unfortunately the experts don’t always agree, which means we are limited to the opinions and forecasts picked by the media.
Sadly, bad news sells newspapers and attracts online and television audiences. Chances are that if there’s a difference of opinion – particularly when it comes to the economy – the negative will win every time.
Few would disagree that challenging times lie ahead.
For the first time in many years unemployment is rising and media reports of redundancies have become worryingly frequent. The economic situation will undoubtedly get worse before it improves.
But the reality is that for the vast majority of your clients, life over the coming 12 to 18 months will be considerably easier than it has been for some time.
While as many as eight per cent of the workforce may well end up unemployed before the end of next year, 92 per cent will still be earning a wage. Those who have a mortgage are already better off by an average of $600 per month since the RBA cut rates by a total of 4 per cent since last September, and there are undoubtedly more cuts to come.
At a global level we are already a good year and a half into the financial crisis. It will not go on forever.
Let’s not forget that until mid last year the principal concern for the RBA was inflation and how to slow down our economic growth.
Regardless of whether you think the RBA was too slow to recognise the impact the global slowdown would have on our economy, the fact remains that our domestic situation was fundamentally sound. There’s no reason why we shouldn’t come out of this mess in better shape than most other developed countries.
For now most Australians have chosen to save rather than to spend the extra dollars the government and the RBA have put into their pockets. While this will not help the economy in the short term, it does mean that when confidence eventually does return consumers will generally have a bigger cash buffer than they did a few years ago.
For now all attention is focused on the first time buyers market, but it seems inevitable that the next big mover will be investors. The fundamentals right now and the prospects for the coming period for this market segment are astounding.
Even with relatively flat forecasts for capital growth, rental yields have soared and show no signs of slowing. With the very real prospect of variable rates dipping as low as 5 per cent during this rate cycle, property investment looks like a boom market waiting to happen.
