Investor Alert: Will Australia Suffer if Other Economic Powerhouses Collapse?
Many people have been feeling uneasy with recent happenings in the international economy, in particular the situation in the United States (U.S) and throughout parts of Europe. Some worry that should affected countries see their economies collapse, Australia will go down with them and so will our property market.
Indeed, the situation in these countries does not look crash hot. They’re suffering from a multitude of problems from huge amounts of debt to slow or even negative economic growth, to high levels of unemployment and flat-lining property prices. In today’s highly mobile and interconnected world, it would be foolish to think that Australia would be completely immune from any fallout. In fact, just recently news about the deteriorating state of these countries shook our Stock Market, albeit temporarily.
However, we probably don’t need to worry too much. Why? Because Australia is just about the only stable and resilient developed economy in the world.
Yet with all this global uncertainty – now and over the past few years - Australians have understandably been concerned. But, we overlook just how good our economy really is and how we’re doing much better than the rest of the world. We forget that when the GFC hit in 2008 and many economies were going into recession, Australia was one of the very few that didn’t. We disregard the strength of our economic policies and our financial institutions. We gloss over the fact that we have some of the lowest unemployment in the western world, that household wealth is at near record highs, and that we have one of the lowest public (sovereign) debts in the developed world. If you go back in time and tell someone that this is where we would be after one of the biggest global financial disasters in history, I think they’d probably tell you that you were dreaming!
Australia has also experienced continual expansion of our exports and unprecedented growth in the mining industry over the past ten years that not even the GFC could hinder. Our ties with markets in China, India and other ASEAN nations are burgeoning while those with the U.S and Europe have been declining. Economic changes in these primary export markets will be far more important to Australia than those in the U.S and Europe.
Should the situation in the U.S and Europe grow worse, we must be realistic and anticipate some impact. But the effect will probably be small compared to other parts of the world. Additionally, we are in a good position to cope with room for another fiscal stimulus if needed as well as interest rate cuts to keep our economy afloat. Not many other countries have these fallbacks. The Stock Market may show some volatility which is normally painted negatively by the media, but on the flipside it can often be a positive for property investors. In such times, people tend to shun the Stock Market and look to more stable places to invest their funds which are typically gold and property. This increase in demand for property can turn around consumer confidence and lift the property market.
In the short to medium term, assuming the global situation stays much the same, I expect Australians will continue to remain cautious. This is evident with Australians saving at the highest rates they have in years. People will continue to sit and wait, delaying expenditure wherever possible. The good news is that any talk of rate rises should become a distant memory. The futures market is anticipating that by the end of the year the cash rate will drop to around 4.0% and drop further still to 3.5% by June next year. This will certainly help improve consumer confidence and spending and in turn our economy. The longer term is harder to predict as it will depend to some degree on the state of the global economy but in particular our main trading partners China and India. I expect though that any negative effects will be more ripples than waves, and that the property market will improve with low vacancy rates and rising rents, while low interest rates will continue to attract more investors back into the market.
Although we may not be entirely shielded from the poor economic performance of some developed nations around the world, I am confident that if any country can power through it Australia can. I know there’s no other place I’d rather live right now.
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