Recessions Always Fast Track Change – Even When the Quarterly Growth is Negative 7%

Over the next three-months’ newsletters, I want to focus on the positive aspects of economic downturns and the changes which they create. As you will have all just read, our quarterly GDP growth in the June 2020 quarter dropped by 7% - this was the largest quarterly drop since records were kept in 1959. When you hear these types of drops on the nightly news, you could forgive yourself if your heart drops, the rest of your night might be a little subdued.

However, if you have been in business over many years, the heartache of economic downturn is something that you are always mindful of even many years after you have had the experience of the downturn. That being said, one thing I have learnt over 36 years as an accountant is that economic down turns are generally short lived and often result in a new wave of innovation or wealth building which wouldn’t not have been possible had the recession not occurred.

I know I keep going back to the 1990s, but it was a decade when we saw massive changes in the economy from a manufacturing-based economy to a service-based economy. I see similarities in the COVID-era from a service-based physical economy to a service-based virtual economy. That is, we have now worked out that in many cases, that work can be done efficiently from home due to the technology advances which have occurred over the last 10-years.

This in fact may result in the following changes to the way our economy operates:

• (a) Less dependant on office space to conduct business.
• (b) More dependence on efficient home offices and hence residential property to not only live in but to conduct business.
• (c) A push to make one’s home multi-purposed.

Also, depending on different jurisdictions’ views on combating the COVID-19 virus, economic activity for the first time may be pushed to jurisdictions with less COVID cases or more liberal views to restricting citizens movements. This is where the opportunities are.

Now we don’t have a crystal-ball, but perhaps there will be opportunities in states with less restrictions or more pragmatic approaches to dealing with the current situation. This could then have a flow on effect to demand on properties in those areas. Who knows, we may see a flourish in demand for regional areas and Queensland due to these factors!

Getting back to my comments on GDP, you can see below GDP numbers for every quarter between 1991 and 2018 reveals in 21 quarters over the last 30 years, that there has been negative growth. As you can see from the graph, negative growth quarter is always followed by a bounce back in the next quarter’s GDP growth.

That is, when there is doom and gloom in the economy, there is always a group of entrepreneurs willing to take the risk to regrow the economy and assist with the bounce-back. This is what happens in capitalist economies – people refocus in difficult times which in turn grows the economy in later quarters.

My take home points from this:

1. See difficult times as an opportunity to reinvent either your career or your business.
2. Difficult times are often the times when you look back and see the success which came from having to move out of your comfort zone.
3. It is often in these times when you position yourself to build long-term assets, eg. property or business expansion.

As someone once sent do me, “nothing is ever a problem, it is just a challenge to overcome”

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained