Panic on the streets — we’re going into recession

OK, the subject line is an exaggeration (probably the first time in the history of the internet this has ever happened), but there’s lots of concern at the moment that Australia is going to fall into recession.

Many commentators are worried that the current crisis in consumer confidence will impact economic growth.

They suggest that the negative wealth effect of falling house values could lead to a cut in consumer spending and that this plus the collapse in construction activity (one of our biggest employers) at a time of overseas economic headwinds could combine to create the perfect storm which could lead to Australia into recession.

Well here are my thoughts…

Australia will have a recession…one day – but not any time soon!

But you don’t have to believe me…

In his first public speech for 2019 Reserve Bank Governor Philip Lowe highlighted the issues that are likely to shape the future.

Now the people who run this country must think he’s a pretty cluey guy as the pay him a pretty penny to look after the Australian economy, and Governor Lowe said that we won’t fall into recession, however he feels economic growth will be 3% in 2019 rather than his former forecast of 3.5%.

Lowe also believes the current slump in our property markets is “manageable” but conceded that now it’s just as likely that the next move in interest rates is down as it is likely that we’ll have a rise in rates.

For what it’s worth I think interest rates will be cut twice this year bringing the rate down to one per cent.

6 Reasons we’re not going into recession

Here are 6 reasons given by Governor Lowe as to why we’re not going to have a recession:

1. Despite the various political issues and the trade wars creating some downside risks, the world economy and the economies of our trading partners are performing well.

2. Australia’s economic growth is forecast by the RBA to be around 3% over 2019 and 2.75% over 2020.This should be enough to see further gradual progress in lowering unemployment.

3. We’re creating more jobs.
Last year:

• 212,000 full time jobs created last year
• 51,000 part time jobs created last year

4. Unemployment is falling – at 5% it is now the lowest it has been since 2011

• In NSW and Victoria (our two economic powerhouses) unemployment is around 4.25%
• With the number of job vacancies at a record high, unemployment is forecast to drop further to 4.75% over the next few years.

5. There are finally signs of wages growth ahead

6. A gradual pickup in underlaying inflation is forecast as spare capacity in the economy diminishes.

• Underlying inflation is now expected to increase to about 2 per cent later this year and to reach 2¼ per cent by the end of 2020.

 

 

Now I’m not an economist but I see plenty of other positive signs amongst all the pessimism in the media.

These include:

• The next Federal Budget is likely to deliver a surplus for the first time in years.
• Our population is growing strongly – albeit a little slower than before
  • Australia’s population grew by 390,500 people or 1.6% during the year ended 30 June 2018.
  • Natural increase and Net Overseas Migration contributed 39.4% and 60.6% respectively to total population growth for the year ended 30 June 2018
• Infrastructure boost – We have a very strong infrastructure investment pipeline mainly coming from State Governments.
• The next Federal Budget is likely to deliver a surplus for the first time in years.
  • Australia’s population grew by 390,500 people or 1.6% during the year ended 30 June 2018.
  • Natural increase and Net Overseas Migration contributed 39.4% and 60.6% respectively to total population growth for the year ended 30 June 2018.
• The Australia dollar is likely to stay low for some time yet and this is good for our export industries.
• Our Mining Sector is on the improve assisted by our falling Australian Dollar and increasing mineral prices. This means the big economic drag we have seen from the downturn of the mining sector over the last five years or so from falling mining investment is starting to fade.
• The Agricultural Sector on the improve – and if we play our cards right we could become the Asian food bowl.
• Tourism is booming
• International student education is continuing to be a huge “export industry” for us – up 17% last year.

Our Housing markets

And while clearly not all the news is good for our housing markets there are clearly some positives that the media tends to overlook.

• Interest rates are low and are likely to fall further this year as the RBA tries to stimulate our markets.
  The good news is the RBA has plenty of ammunition up its sleeve but there is always the question of whether banks will pass on interest rate cuts to their customers, and whether they will loosen their tight lending criteria.
• Residential vacancy rates are tightening
• Rents are likely to rise
• The underlying demand for property is still strong but hindered by consumer sentiment and tight credit.
• There is clearly oversupply of new apartments in many locations, but the pipeline is slowing down.

The big unknown

Clearly we have a mixed bag of economic fundamentals that will interplay on our economy and our housing markets.

While these are relatively easy to quantify, the big unknown will be consumer sentiment and currently that is low and unlikely to change until the outcome of the federal election is known.

Having said that, those investors who take a long term view and recognise that all economic downturns are temporary, while the increase in value of well located residential properties in our capital cities is permanent, will be able to take advantage of the property investment opportunities the current buyer’s market is delivering us.

WHAT CAN YOU DO TO STAY AHEAD?

As signs point to softer growth conditions for Australian property over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.  

If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

from Property UpdateProperty Update https://propertyupdate.com.au/panic-on-the-streets-were-going-into-recession/