Australian Resilience to be tested once again!

The Australian Economy has proven to be resilient against headwinds over the last 3 decades, the country recently celebrated breaking the record of 26 years of economic growth. During that time there were many economic disasters that could have sent the country into a recession for example the Bursting of the Tech Bubble, the end of The Mining Boom and most recently the Global Financial Crisis. The steady ship looks headed into a storm right now, and its resilience will be tested once again.
Key Stats
GDP Growth 1.7%
Unemployment 5.7%
Inflation 2.1%
The main concerns for the Australian Economy are Consumer Spending, the real estate sector, commodity prices and re-balancing the economy towards non-mining led growth.
Consumer Spending
Consumer Spending remains low in Australia even though unemployment levels are low across majority of the states. The lack of consumer spending can be attributed to three main factors rising household credit, underemployment and sluggish wage growth. Mortgages have been on the rise over the last fiscal year and that has put pressure on consumers spending habits, many people in Australia are also under-employed as they are working part-time or casually and cannot find full-time jobs, this essentially cuts their earning capacity in half. Unemployment has been on the decline and the country is almost at full employment, in spite of that progress, this has not been reflected by an increase in wage growth. All these factors have simultaneously put pressure on the consumer’s budget.
Housing Crisis
The Real Estate sector has been a major talking point in the media, with many saying that the Eastern housing market was experiencing a bubble and the bubble is getting ready to burst. Prices of houses have increased exponentially since the GFC. The rise has been caused by record low interest rates and massive foreign investment coming from Asia. Unfortunately because the increase in price has not been because of economic growth in Australia it has put pressure on Australians trying to enter the market, because Australians earnings have not increased but the prices of the houses have. This has resulted in many people either being locked out of the market or taking mortgages that are unsustainable in the long-run. Many are predicting that when some sensibility slips back into the market there could be a massive price correction, which would result in a many people losing millions of dollars. Another scenario that could pan out would be an interest rate hike by the RBA which would increase the credit pressure on Australians and most likely result in mortgage defaults.

Re-Balancing the Economy
Australia has also taken the initiative to re-balance the economy and reduce the exposure to China and the cyclical commodity prices. Declines in China’s economic growth have resulted in reduced demand for Australian commodities. This had a negative effect on the Australia GDP as iron ore is its number one export. This makes it very important for Australia to offset its exposure and invest in other sectors of the economy.
Outlook
The outlook for the global economy is positive as we have seen USA, Japan and Europe report positive Economic data in 2017. This growth may support growth in Australia as there will be an increase in demand for Australian products and services. Australian Economic growth is expected to lift to 2.75% in 2018 and continue rising. Business investment is expected to increase on the back of rising global demand for Australian products and services. The long-term outlook on Australia is a bit concerning, will be watching how the steps the government has taken in its 2018 Federal budget will affect the overall economy.
