Optima Partners’ chief economist (hahaha!!), Enrico De Pietro, talks to One2One about business and consumer confidence and what is happening in the Australian economy right now. As business advisers, one question we get asked all the time is “what’s happening in the economy at the moment?”
Business confidence seems to be improving but business owners are cautious about taking risks, which is exactly what we need. Our economy requires businesses to start investing and hiring people but the economic outlook is uncertain. We hear a lot about how global developments affect the Australian economy and, more so closer to home, how Western Australia’s mining sector is being influenced by external sources.
Many projects have been postponed or cancelled, resulting in a number of redundancies sweeping through the sector. Cost cutting and job losses seem to be the daily news headlines. I recently chatted with a FIFO client who is contemplating accepting a 3 month contract but has to pay for his own flights to and from camp!
Global economies remain shaky with the USA showing only a modest recovery, Europe is a basket case and China’s growth has eased recently. The fall out of the GFC still seems to be fresh in our minds as consumer confidence is surprisingly weak. Consumers are saving, reducing debt and consolidating their position. They are savvy when it comes to spending and are cautious when making investment decisions. Low interest rates and a booming housing market should result in a stronger economy, however, the uncertainty of job prospects is trumping this confidence.
The WA housing market is still kicking along nicely due to positive migration figures and a shortage of accommodation. Rents in the metro areas are strong, the median house price remains high and investors seem confident. What does the future hold? Who knows but there’s a school of thought to suggest the migration figures will turn. This means the number of people migrating to Western Australia will reduce. The result? An oversupply of property causing downward pressure on values and rental returns. We’ve seen this happen in major northern towns, such as Karratha, where values and rents have halved in the last twelve months.
The Reserve Bank of Australia is responsible for monitoring the economy and regulating the standard cash rate. The rate has remained at an all time low for almost 18 months!. As most economists are predicting a rate rise some time in 2015, it is a great time to think about refinancing and locking in a fixed rate. It will give you reassurance and knowledge of future cash flow commitments.
Optima Partners can assist you with your financing requirements, if need be.