The challenge of the times

Reflecting on the month of July, and receiving feedback from many of our businesses, it always impresses upon me how different the real Australian economy is to the GDP numbers supplied. As Australia is a resourced based economy heavily reliant on iron ore, coal and natural gas, the current GDP of 1.5% still shows that we are not in recession.

The funny thing is, I have not met anyone in the last two months that believes that this is the case! Perhaps it typifies that Australia’s real economy can often be floundering when the headline numbers appear ok.

Feedback I have received from clients in the last month or two is as follows:

1. Our personal savings have been drained because of interest rate rises and we no longer have the buffer that we had 2-3 years ago.
2. Business conditions are challenging because those that are reliant on borrowing money to instigate purchases have been more restricted in what they can do.
3. Even the very best performing business have challenges in some cases not seen since post-GFC years.

Indeed, the Reserve Bank’s quest for 2-3% inflation sometimes come with real hard-hitting consequences in the real economy.

Many economists are predicting that interest rates will gradually begin to decrease some time next year, however, I think we’d agree with the fact that rates are probably 2% higher than the real economy can sustain at present.

My advice to our clients is to endure through this difficult period and don’t overpay for assets at present. When the economy has been subdued for a couple of years, the best buying opportunities are in the market (whether a property or business).

Looking forward to touching base with as many of our clients in this next year as we can to work our way through the maze.