November 26, 2014

Whats Wrong With The Australian Economy?

There has been a lot of news in recent times about the troubles with the European Sovereign Debt Crisis and slowing World Economy, and it made me ask myself “What Does All This Mean For The Australian Economy“?

Two speed Australian EconomyPerhaps you have been asking yourself the same question about your own country too, if your not from Australia.

Today I watched a clip from the hit TV show “Newsroom”, which I think sums up what the general population is feeling right now, in both America and Australia (if not other countries).

And it made me ask myself 3 questions:

  1. Where is Australia really at?
  2. Where should Australians Invest their Money?
  3. And what does our Future hold?
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Australian Economy – Where are we really at?

Like America, Australia comes from a proud history, has an advanced economy, and has abundant resources…. but are we becoming complacent because of past achievement, past economy strength.

News about the Australian Economy

The news outlets have been sensationalizing doom and gloom with the world economy slowing down, and every few weeks there seems to be a new story with people losing their jobs, or a companies going into receivership, particularly in the Australian manufacturing, industrial, and government services sectors.

While in contrast Government officials are saying the Australian Economic Growth Indicators are indicating the Aussie economy is relatively strong, thanks to the mining boom.

Mining communities are thriving, and the rest of Australia is doing it tough, highlighting a two speed economy.

There are many factors impacting the struggling sectors including a high Australian Dollar, high energy costs, cheaper imports, online shopping and the looming effect of the carbon tax.

The Australian economy is showing the early signs of an economy in transition, where industries increase or decrease in size and people they employ, and become more efficient. Which brings me onto Australian unemployment rate.

Unemployment Rate

The Australian Unemployment Rate has risen from 5.2 to 5.3 percent in July , which is not in itself alarming… at the moment.

Australia currently ranks: (data provided by www.cia.gov)

  • 50th in the world for Unemployment (5.3%).
  • 93rd for Unemployment of 15-24 year olds (11.6%),
  • 43rd for Labour Force (12,050,000)

Generally speaking the 65yo+ generation are staying at work a few years longer, and are delaying retirement, mainly due to superannuation losses after the 2008 stock market crash and the rising costs of living. This is perhaps delaying opportunities for younger workers.

The Workless Class

A concerning trend that is also emerging is the “Workless Class“. A growing number of young people who are on unemployment benefits, that have no intention of seeking work, having grown up with parents that have also lived a life on welfare.

Much more must be done by our government to provide opportunity and provide incentive to find sustainable employment to break this cycle.

Job Creation

Since early 2000, the bad news is that 100,000 jobs have been lost in manufacturing industry. While the good news is 100,000 jobs have been created in the mining boom, as well as 300,000 in the education section and 500,000 jobs in the health services industry.

This is prime example of an economy in transition, where industries expand and contract. The only worry is that these expanding industries are not products related that can be exported

Our countries leaders must now ask themselves “What are the industry sectors that will emerge in 2020-2030“, and begin fostering these industries that we can export to the world, further diversifying our economy.

GDP

Since 1960, the growth rate of the Australian Gross Domestic Product has only dipped below 2% on 7 occasions, which would suggest it has been consistent and strong. However the current economic factors will challenge this growth over the short term, especially while the Australian dollar remains high, and cheaper imports flooding the markets.

Australia currently ranks:

  • 22nd for GDP per Capita
  • 146th for GDP Growth Rate (2.0%)

You can see by the chart below that in recent years the GDP growth rate has seen downward pressure.

CPI

As indicated by the Consumer Price Index below, Heath, Education and Food, Alcohol and Tobacco have all show solid advancement in the price index since 1990. It could be argued that the price growth in these sectors has supported the job creation mentioned earlier.

Australia ranks:

  • 78th for Inflation Rate (3.4%)

Consumer Confidence

The Australian Consumer Confidence has edged its way lower in the last five years as the NAB business confidence charts shows below.

Australian consumers have been watching what they spend, preferring to reduce debt and save money. We have also become a nation of savy shoppers, by shopping online, and in many cases, shopping via overseas online stores because of the high Australian dollar.

Where Should Australians Invest Their Money?

Stock Market

If you are an investor in the Australian Stock Market, which most Australian Citizens that have superannuation are, the news hasn’t been great in the past few years.

While we enjoyed a strong bullish market in the mid-2000′s, the truth is since the 2008 Stock Markets Crash the Australian Stock Market has struggle to perform, as the All Ords v’s SP500 Relative Strength chart shows below.

Australian Stock Market - Relative Strength

(Click image to enlarge)

So until the Australian Stock Market shows a change in performance, better portfolio performance may lying in other markets like the US Stock Market.

Property

Over the last 12 months the Australian property market has experience some softening, which is usually caused by at least 1 of 3 things :

Although interest rates and unemployment are relatively low, it seems job security is reflecting on the cautious property outlook for Australia property consumers.

When its all said and done, Australian property will still be a sound investment in the long term, with Australia still suffering from a housing shortage, and maintains low rental vacancy rates.

The infrastructure in many capital cities in Australia are struggling to cope, and housing prices are still relatively high, so expect to see growth in regional cities with close proximity to capital cities.

The best news is that the entry level for regional property is also much lower.

What is the Future For Australia?

Government

Forget the Carbon Tax, the No.1 issue in Australia right now is the unstable government that is running our country.

Australian Citizens are feed up with policy designed to buy votes, that is not in the countries best interest, and in some cases is never realized.

In the last 5 years our nation has accumulated $234 Billion worth of Debt, thanks to our current Labor government, who took over government in 2007 debt free.

Take a deep breath and consider the enormity of this…depending on future budget surpluses, it may take up to 50 years to pay back.

This current Labor Government has been an embarrassment to the Australian people, completely lacking in real leadership, behaving poorly and failing to deliver on promises from the last election. (yes you can guess who I’ll be voting for next election ;-) )

Leadership & Fiscal Management

Australia is in great need of some old fashion leadership, a government that will tell us how it is, and make some intelligent decisions for the future, and to get things done.

While the Mining Sector is predicted to be strong for many years to come, future government needs to provide strong fiscal management, to promote and foster new emerging industries to see us prosper from 2020 and beyond.

Policy’s that must of great interest are “National Debt Reduction, “Transitional Industries Growth”, “Regional City Growth”, “Work for the Dole” & “Tougher Refugee Control”.

Carbon Tax

While the Carbon Tax has been much talked about, mostly that it will increase the cost of living for most Australians.

In essence it is a good tax, as it has already changed the thinking and actions of business and the consumer, and with help create a cleaner & greener Australia.

Policy makers only need to get the balance right, as Australia is already one of the most taxed countries in the world.

Conclusion

The Australian Economy is relatively strong when compared to other economies around the world, however the early indications show that we cannot afford to be complacent.

There will be lot of change with economies around the worlds over the next decade, and countries that respond with stable government, sound policy to create good conditions for economy growth.

The opportunity is now Australia.

Please leave a comment below on your thoughts and feelings on the Aussie Economy

Comments

  1. Hi Trend Hunter,

    Lots of great information here, thank you. I will never forget a comment that a property investor once told me and that is that there are mini-economies going on all over Australia.

    With regards to Australian debt. Now that the government has sold off pretty much all its assets it has no source of income to pay off its debts so where will their money come from now? Us – the general tax payer. Taxes will rise as the debt blows out further.

    Great article.

    Eileen.

  2. David moloney says:

    Australia, like other developed nations is in a bit of a pickle. Democracy dictates that to be reflected a government must make populist decisions that aren’t in the best lng term interests of the country. As the baby boomers age the strain on healthcare is going to exacerbate, tying up the government coffers. People live longer and have more medical operations. That requires significant health expenditure.

    The government won’t have much money and so will need to reduce the pension, increase pension age and generally increase taxes. Te short term solution to getting more funds is to increase the intake of immigrants. Although this helps economically, it increases the strain on services and living space.

    Where to from here? We are living unsustainably. I don’t have the answers. I don’t think there is a simple answer. But we are in for some tough decisions about population control and standard of living.

  3. Great article on the state of Australia’s economy.

    It seems Australia’s economy is becoming a carbon copy of the UK’s – with slightly better weather!

    The UK’s ‘solution’ has been to keep increasing VAT (GST in Oz) and I think that will be Australia’s next move, once the carbon tax has died down. It wont be popular, but increasing personal taxes would be less popular, even though the net result is the same.

    In early 2011 the UK raised VAT from 17.5% to 20%. I wonder if the extra revenue went towards supporting their budding Olympic athletes? If it did, it certainly worked.

  4. I recently did a post on how the situation is affecting the elderly those who should be able to sit back and relax.
    Most of them are the ones who have worked their whole lives only to find themselves desperately worried at the raising costs

  5. Trend Hunter, yet another great article.

    I travel around Australia a lot with work. It is clear that even the ‘mining boom’ is reaching an unsustainable peak. I feel like we (as a country) are squandering our biggest opportunity in a century. The prospect for our property markets look bleak. Many parts of our business sector is noncompetitive. As workers, we have become too complacent, constantly trapped in a cycle of higher prices – higher wage demands – higher costs, etc.

    Both sides of the political arena are no help either. We need strong leadership in both Houses of Parliament. Instead, we have poor policies, ‘self interest’ independents and an abundance point scoring between parties.

    • Trend Hunter says:

      Hi Luke.
      I couldn’t agree with you more
      We need some leadership with vision, and the mindset to help our own people first (without handouts), before we worry about any refugees.
      Charity begins at home…as the saying goes.

  6. You certainly do not mince your words about the Labor government ! Guess what ? I agree they are the pits – having taken us from being well in the black to seriously in the red – and that of course is about the finances ! Ha !
    They have taken us a long way towards the red politically too !
    Better stop before I yell out loud.

    I won’t mention the Greens as I have a delicate stomach ! YUK YUK YUK

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