coronavirus Archives

Quarterly Economic Update: January-March 2022

27 April, 202220 April, 2022 Updated on20 April, 2022 COVID-19, Economy, Investing

Robust domestic economic growth Australia is rebounding from the pandemic, with domestic economic growth forecast to reach 3.5 per cent this financial year. Some analysts predict it might be even stronger, possibly reaching as high as 4 per cent. Driven by Government spending Much of this is due to the lingering impact of the Federal Government’s massive $343 billion health and economic pandemic support packages, as well as further spending in response to recent floods in New South Wales and Queensland. The Government is also spending some $18 billion on infrastructure, mostly rail and road improvements, in an attempt to boost productivity and efficiencies throughout the economy, particularly in the regions. Tightening geo-political tensions in Asia and around the world has prompted the Government to earmark as much spending again on strategic defence measures, including a new naval submarine base on the east coast. Spurred by higher commodity prices The sudden, and largely unexpected, war in Ukraine has prompted a spike in oil prices as a shadow falls over the continued supply of Russian oil and gas to Western Europe. While prices will ease with the arrival of the Northern summer, they are expected to remain stubbornly high. The war, along with continued supply interruptions due to the pandemic’s lingering impact on world trade, means prices for key commodities such as iron ore, coal, and wheat will remain high for the foreseeable future. For Australia, this is, on balance, good news, meaning the price we are paid for key exports will remain strong, driving both domestic profits and Government tax revenue higher. Employment is exploding In line with this strong level of economic growth, domestic unemployment is set to fall to 3.75 per cent in the coming months, its lowest level in some 50 years. Meanwhile, whole sectors, such as the aged care and child-minding sectors and a number of agricultural sectors, are reporting desperate staff shortages, prompting calls to lift migration levels and allow more temporary workers into the country. Nonetheless, low wage growth continues to dog the economy. While the Government is forecasting quarterly wage growth of 3.25 per cent by the middle of next year, this is still below the expected inflation rate, meaning most Australians will face little relief from higher living costs. However, the continued strength of Government spending, combined with prevailing strong terms of trade, should boost profits across the board, leading to higher returns for investors. Despite some clouds on the horizon As always, there are clouds on the horizon. The United States was already facing inflationary pressures, and the impact of the Ukraine war on oil prices is likely to push the US inflation rate higher still, possibly touching 7.9 per cent this year. The US Federal Reserve has started to pull monetary policy back in with a series of interest rate hikes, fanning fears that the US economy may fall into recession later this year. The US is not alone. The Australian Federal Treasury expects global trade bottlenecks (the war in Ukraine and higher oil and food prices) to prompt an uptick in the local inflation rate above the Reserve Bank’s preferred inflation band of 2.5 to 3 per cent. Rising inflation is, in turn, spurring fears of a domestic interest rate hike, with many analysts expecting the cash rate to increase by one full percentage point, which could cause home loan rates to rise across the country. The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: October-December 2021

19 January, 202220 April, 2022 Updated on20 April, 2022 COVID-19, Economy, Investing

Coronavirus Victoria and New South Wales saw their economies roar back to life as they emerged from lockdown just in time for a new kid to arrive on the coronavirus block. Omicron spread around the world seemingly within days knocking Delta off the front pages. Appearing to cause less severe disease than previous strains, and with Australia achieving high rates of immunisation, state governments held off resorting to lockdowns in an attempt to minimise financial carnage on businesses and workers. All this battling against the virus comes at an enormous cost. The mid-year budget update forecasts annual deficits of around $100 billion for the next few years, no surplus over the next ten years, and gross debt of $1.2 trillion by 2024-2025. Jobs galore The unemployment rate dipped to 4.6% in November as an additional 366,100 people joined the ranks of the employed. The under-employment rate fell 2% to 7.5%, and many employers reported difficulties in finding staff. Homebuyer hopes Homebuyers gained a little power over sellers towards the end of the year as a surge in listings saw auction clearance rates in Melbourne and Sydney drop to 66% and 73% respectively. If this extra supply is maintained it should help to cool what has been a very hot property market. COP this The Covid-delayed climate change conference COP26 was finally held in Glasgow, and Australia joined the large number of countries aiming to reach net zero carbon emissions by 2050. Good progress was made in some areas, such as reducing methane emissions, ending deforestation and, for some countries, phasing down coal. However, modelling predicts that if all current commitments are fulfilled we will still see temperatures rise by 2.4 degrees. This is well short of the Paris Agreement goal to limit warming to 2 degrees, and preferably 1.5 degrees. The Glasgow Climate pact calls on nations to “strengthen their pledges to reduce emissions by the end of 2022.” Expensive energy Major energy users suffered from a big spike in the costs of both coal and natural gas during the quarter. Prices corrected abruptly in November, but still remained much higher than at the start of the year. Oil prices were also higher, nudging US$85 per barrel during October and November. Aside from hitting consumers’ petrol and home energy bills, high energy prices also led to an increase in the cost of, and shortages of urea – a chemical that is critical to the production of fertilizer (and therefore food) and to keeping diesel trucks on the road. Ups and downs The volatility in the value of the Aussie dollar against major currencies continued for the quarter. It traded between 70 US cents and 75 US cents in line with its long-term trend. We gained more than 3.7% against the Euro and Yen, and held ground against the British Pound. The local share market failed to excite, tracking sideways before putting on a small end of year spurt that saw the S&P ASX 200 close the quarter up 1.5%. It was a different story for US stocks. The S&P500 closed out the year at a record high after lifting nearly 11% for the quarter. The Nasdaq was close behind with a 9% gain. The information provided in this article is general in nature only and does not constitute personal financial advice.

Economic Update: July-September 2021

7 October, 20217 October, 2021 COVID-19, Economy

COVID here to stay The third quarter of the calendar year brought with it the third and by far the biggest wave in COVID-19 infections. Largely restricted to NSW and Victoria the outbreak was driven by the highly infectious Delta variant. Such was its speed of spread it forced a change in strategy from one of elimination to learning to live with the virus, supported by a massive vaccination campaign. By quarter’s end vaccination rates were closing in on key targets that will allow a slow and selective lifting of the severe lockdown conditions that have prevailed for months. Time to chill You know Australia has a housing problem when the head of one of the big banks, in this case Matt Comyn at CBA, calls for action “sooner rather than later” to stop the property market overheating. This was on the back of CoreLogic data showing house prices in Melbourne and Sydney rose 15.6% and 26% respectively over the 12 months to August. The International Monetary Fund (IMF) also called on Australian regulators to cool the market. Don’t expect this to happen through the usual instrument of increased interest rates. Rather, look for reduced lending in specific sectors, such as investors, higher deposit requirements, or testing loan serviceability at higher interest rates. Pop goes iron ore Iron ore’s price bubble eventually popped as China instructed its steelmakers to cut back on production. Over the quarter the ore price fell 45%, with major miners taking an equivalent hit. BHP, Rio and Fortescue saw their shares tumble 33%, 26% and 44% respectively. Hot topic In August the Intergovernmental Panel on Climate Change (IPCC) released its latest report. It warned that “unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to 1.5°C or even 2°C will be beyond reach”. The report paints a grim picture of what that warmer world will look like and returned climate change to the front pages of the world’s newspapers. The numbers Equity markets experienced a bit of a rollercoaster ride over the quarter. All the major indices posted record highs, but most ended up within 1% of where they started. The Aussie dollar also had a volatile quarter, trading between 71 and 75.4 US cents and finishing at 72 cents. It was a similar story against the other major currencies. In both cases the late-quarter sell-offs were blamed on expectations of higher US interest rates. On the radar Many of the world’s leaders will come together in Glasgow at the end of October for the 26th UN Climate Change Conference (COP26). If they heed the warning from the IPCC, and if they agree to take the necessary steps to limit warming to 2°C (and preferably 1.5°C), it will set the scene for a dramatic economic transformation, with huge opportunities for those who can sort the winners from the losers. Of more immediate concern, Chinese property company China Evergrande appears to be on the brink of collapse. Heavily indebted to the tune of US$300 billion, if it is allowed to fail it is likely to have global ramifications, not the least for Australia. China’s construction boom has been a huge driver of demand for our iron ore. The information provided in this article is general in nature only and does not constitute personal financial advice.

Economic Update: April-June 2021

21 July, 202114 July, 2021 Updated on14 July, 2021 COVID-19, Economy

Employment surprise JobKeeper was a cornerstone of Australia’s response to the coronavirus pandemic. It provided millions of Australians with an ongoing income and kept thousands of businesses afloat, so when it came to an end in March expectations were that there would be a sharp spike in unemployment. One estimate was that 150,000 workers would lose their jobs. Happily, that wasn’t what happened. From March to April the unemployment rate dropped from 5.7% to 5.5%, then fell to just 5.1% in May. That’s below the 5.2% that applied in January 2020 before the pandemic hit, and an amazing outcome given the damage that COVID-19 continues to inflict on a virus-weary world. Housing continued to sizzle… Aspiring homeowners and upsizers endured another quarter of woe as home prices continued to soar. Nationally, dwelling prices were up 6.1% for the quarter and 13.5% for the year, with houses outperforming units. Of course, on the other side of the equation are homeowners, many of whom are delighted by the significant boost to their wealth. Continuing low interest rates remain the key driver, but other issues have played a part, including stamp duty discounts and households redirecting the cash they would otherwise have spent on overseas holidays. Lockdowns last year also affected the normal supply of property leading to pent-up demand. As subsidies are rolled back, supply and demand normalise and if population growth remains low, property price growth may well come back to ‘normal’ levels. And despite the RBA not expecting to raise interest rates until at least 2024, some economists are pointing to the low unemployment figures to predict that interest rates may begin to rise by the end of 2022. There is also growing speculation that the RBA and APRA will lift lending standards (e.g. requiring lower loan to valuation ratios) in order to rein in galloping price growth. …as did share markets Global markets performed strongly over the quarter with many setting record highs. Locally the S&P/ASX200 rose 7.7%, beating the MSCI All-Country World Equity Index, which was up 6.9%. Tech shares were back in the lead with the NASDAQ gaining 11.2%, while the S&P500 rose steadily to gain 8.6%. The Aussie dollar fell slightly against the major currencies weakening late in the quarter following talk that the next move in US interest rates may be up. Also… – Workers receiving the minimum wage will see a boost to their pay packets from July, with the minimum wage rising by 2.5% to $772.60 per week or $20.33 per hour. – Most people will see the superannuation guarantee (SG) payment from their employers rise by 0.5% to 10% of normal wages. This is one step on the path to raising the SG to 12% by 2025. – According to Credit Suisse, nearly one in ten Australians are now millionaires. Twenty years ago the figure was less than 1%. Of course a million dollars today doesn’t have the buying power it did 20 years ago, but only Switzerland has more millionaires per capita than we do. – Massive infrastructure projects and home renovation booms have caused a global shortage of building materials. An indicator, perhaps, that some COVID-19 stimulus measures have been a tad overdone? The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: January-March 2021

14 April, 20217 April, 2021 Updated on7 April, 2021 COVID-19, Economy, Investing

The global COVID-19 jab-fest gathered pace with some countries, including Israel and the United Kingdom, achieving high rates of immunisation. However, the rollout has had some issues. Rare side effects linked to the AstraZeneca vaccine saw a number of countries suspend its use for a period of time, and Australia was slow off the mark with its immunisation rollout. The longer it takes to vaccinate the world, the slower the economic recovery. Hot property Pushing COVID-19 off the front pages was the big jump in residential property prices. Nationally, CoreLogic’s home value index jumped 5.8% for the quarter. Sydney led the jump with a 6.7% lift. In March alone the index rose 2.8%, the biggest rise in 32 years. Most of the action was on the first home and owner-occupiers front, though investor purchases were also up. The main fuel being added to the property price fire is ongoing low interest rates. With the RBA indicating rates will most likely remain low for years, that could continue to inflate property values and see more people priced out of the market. Helping to fuel the market was good employment numbers. Seasonally adjusted, the ABS reported an unemployment rate of 5.8% in February, down from 6.3% in January. However, this counts people on JobKeeper as employed. Taking this into account, Roy Morgan put unemployment at 13.2% in February, with 21% of the workforce either unemployed or under-employed. Blocked artery In late March the container ship Ever Given provided a graphic example of how small things can have a huge impact. Strong wind gusts saw the giant ship wedge itself bank to bank across the Suez Canal, one of the world’s main shipping arteries. Suddenly 30% of world container shipping ground to a halt. Fortunately, the ship was freed after a few days, and the backlog of ships was cleared a few days after that, but it was a stark reminder of how vulnerable large parts of the economy are. Key numbers The pace of recovery in the local and international share markets slowed during the quarter as prices crept close to or exceeded their pre-pandemic levels. The S&P/ASX200 rose 3.1%, trailing the MSCI All-Country World Equity Index, which was up 4.2%. Tech shares ran out of puff with the NASDAQ only gaining 1.4%, while the S&P500 surged late in the quarter to gain 6.1%. The outlook Many countries are experiencing third and fourth waves of COVID-19, and it’s a fair bet that the virus will continue to dictate the way we live for some time to come. But it’s not the only game in town. US President Joe Biden has taken climate change off the back burner and moved it front and centre. That means our government and businesses will need to pay it a lot more attention too. Expect carbon tariffs to become a hot topic. On the local front, with interest rates all but ruled out as a tool for managing the residential property boom, talk is turning to the use of regulatory methods to dampen demand. These could involve requiring bigger deposits or limiting the rate of credit growth. And with JobKeeper now wound up employment figures will come under close scrutiny. Expect to see a jump in unemployment this current quarter. The information provided in this article is general in nature only and does not constitute personal financial advice.

What to consider when withdrawing your super early

17 June, 202021 December, 2020 Updated on21 December, 2020 Finance

[fsn_row][fsn_column width=”12″][fsn_text] As the COVID-19 virus took a sledgehammer to the economy, the federal government rapidly introduced a range of initiatives to help individuals who lost income as a result of the measures taken to control the virus. One of those initiatives was to allow qualifying individuals access to a portion of their superannuation to help them meet their living costs. Withdrawals are tax free and don’t need to be included in tax returns. Most people can withdraw up to $10,000 in the 2019/2020 financial year and up to a further $10,000 in the 2020/2021 financial year. For many people this early access to super will prove to be a financial lifesaver, but for others the short-term gain may lead to a significant dip in wealth at retirement. And the younger you are, the greater that impact on retirement is likely to be. Alexander provides an example that many people will be able to relate to. He’s a 30-year-old hospitality worker, and due to the casual nature of his recent employment he is not eligible for the JobKeeper allowance. He is eligible to apply for early release of his super under the COVID-19 provisions, however before going down this route he wants an idea of what the withdrawal will mean to his long term situation. Taking the maxMuch depends, of course, on the future performance of his superannuation fund. However, if Alexander withdraws $20,000 over the two financial years, and if his super fund delivers a modest 3% per annum net return (after fees, tax and inflation), then by age pension age (currently 67), Alexander will have $39,700 less in retirement savings than if he doesn’t make the withdrawal. At a 4% net return, he will be $65,360 worse off if he makes the super withdrawal. But that’s not the only disadvantage for Alexander. A smaller lump sum at retirement means a lower annual income. If Alexander draws down his super over a 20 year period, at a 3% net return, he will be around $2,670 worse off each year as a result of making the withdrawal. Over 20 years that adds up to a total loss of $53,375. At a 4% return, his youthful withdrawal will cost him over $96,000 by the time he reaches 87. Reducing the riskOn the plus side, if Alexander is eligible for a part age pension when he retires, his smaller superannuation balance may see him receive a bigger age pension. There are other things Alexander can do to reduce the financial consequences of accessing his super early. One is to only make the withdrawal if he absolutely has to. Or if he does make the withdrawal, to use the bare minimum and, when his employment situation improves, to contribute the remaining amount back to his super fund as a non-concessional contribution. COVID-19 is adding further complexity to our financial lives, so before making decisions that may have a long-term impact, speak to us. The information provided in this article is general in nature only and does not constitute personal financial advice. [/fsn_text][/fsn_column][/fsn_row]

Your wealth during the COVID-19 pandemic

6 May, 202021 December, 2020 Updated on21 December, 2020 COVID-19, Finance, Investing

There isn’t a single person in the world who hasn’t been impacted by COVID-19. As new case numbers start to slow in Australia, so too is our economy. This time presents new challenges as everyone gets used to a “new normal” and figures out the best way to weather the coming months. This article provides an overview of different measures the Federal Government has announced to support individuals and businesses, current market performance and what you should be thinking about when it comes to your finances and continuing to build long-term wealth. Government support for individuals and businessesThe Federal Government has announced two economic stimulus packages and the JobKeeper Payment to support individuals and businesses. An overview of the Federal Government’s measures announced to date is detailed below. Support for individualsThe Federal Government has announced a range of measures to help individuals. Eligibility to access these measures is determined on criteria such as your employment status or loss of income due to COVID-19. Some of the key measures include: two $750 payments to social security, veteran and other income support recipients (first payment from 31 March 2020 and the second payment from 13 July 2020); access to the JobKeeper Payment from your employer (if eligible) equal to $1,500 per fortnight; a time-limited supplementary payment for new and existing concession recipients of the JobSeeker Payment, Youth Allowance, Parenting Payment, and Farm Household Allowance equal to $550 per fortnight; early release of superannuation funds (see overview below); and temporarily reducing superannuation minimum drawdown rates (see overview below). Full details about the Federal Government’s measures to support individuals are available on the Treasury website. Early release of superannuationEligible people will be able to access up to $10,000 of their superannuation in the 2019-20 financial year and a further $10,000 in the 2020-21 financial year. To access your super early, you need to meet ONE of the following five criteria: You are unemployed You are eligible for the JobSeeker payment, Youth Allowance for jobseekers, Parenting Payment special benefit or the Farm Household Allowance You were made redundant on or after 1 January 2020 Your working hours have reduced by at least 20 per cent after 1 January 2020 You are a sole trader, and your business activity was suspended, or your turnover has reduced by at least 20 per cent after 1 January 2020 If you are considering early release of your superannuation, you need to consider what the potential long-term impacts may be to the growth of your super fund and retirement income. While $20,000 may not seem like a lot of money now, it could have significant compounding value if left in your fund. Understandably, people may not have any other choice to support themselves financially. Make sure you speak to a financial professional to understand your risks and if this is a suitable option for you. If you are eligible, you can apply for early release of your superannuation directly with the ATO through the myGov website. Temporarily reducing superannuation minimum drawdown ratesThe temporary reduction in the minimum drawdown requirements for account-based pensions has been designed to assist retirees who do not wish to sell their investment assets, while the value of those assets is reduced. The minimum drawdown rates have been temporarily halved. Support for businessesThe Federal Government has announced a range of measures to help businesses facing financial difficulty. Eligibility to access these measures depends on factors such as your turnover and how much your business’s revenue has decreased due to the COVID-19 pandemic. Some of these measures include: increasing the instant asset write-off threshold for depreciating assets from $30,000 to $150,000; allowing businesses with turnover below $500 million to deduct 50 per cent of eligible assets until 30 June 2021; PAYG withholding support, providing up to $100,000 in cash payments which allows businesses to receive payments equal to 100 per cent of salary and wages withheld from 1 January 2020 to 30 June 2020; and temporary measures to reduce the potential actions that could cause business insolvency. Full details about the Federal Government’s measures to support businesses and eligibility criteria are available on the Treasury website. How the banks are approaching home loansBanks have announced that homeowners experiencing financial difficulty can pause their mortgage repayments for between three and six months. It’s important to remember that, in most cases, interest will still be capitalised and added to your outstanding loan balance. When payments restart, your lender may require increased repayments, or the term of your loan may be increased. These are important factors you need to discuss with your lender. What should you focus on when it comes to personal finance?While it can be tempting to sell all your investments now as the market declines, this locks in your losses and puts your wealth in a weak position. If you haven’t already defensively positioned your investments, speak with a financial adviser about how to best adjust your investing over the coming months. You should also consider how to maximise your returns as the market recovers. Investing and building wealth is a long-term game. As such, you should be investing with a long-term time horizon in mind. What should I do next?During this time, you may face some challenges with your finances. Your ability, however, to understand the options available to you and what the current period means on a long-term basis is key to getting through this challenging time productively. Further, making well thought out decisions now will give you the strong foundations you need in your health and wealth as the world recovers and embarks on a new period of growth. Before you make any big changes to your financial situation, speak to us to obtain personalised advice for your unique situation. This is general information only

The true cost of a pandemic

11 March, 202021 December, 2020 Updated on21 December, 2020 Finance

Recent events such as the coronavirus outbreak, bushfires across Australia and the drought highlight the far-reaching effects of an epidemic. Following the initial devastation of these events, the true cost of an epidemic takes time to filter through the economy. In this article, we’re taking a look at the economic impacts that epidemics and pandemics have on a local, regional and global scale. How do epidemics and pandemics affect industries? The biggest impact on many industries in an epidemic or pandemic is supply chain delays. Industries rely on specific regions to source parts and products. Using the coronavirus outbreak and assembly lines for technology products, as an example, people in assembly lines typically work in close quarters. To contain the outbreak, factories in China have delayed restarting production after the Lunar New Year break. One smartphone factory, Foxconn, is expecting a 12% decrease in production as a result. Tourism is another key industry effected by epidemics and pandemics. In Australia, measures to contain coronavirus, including halting incoming flights from China will have significant impacts on the tourism and education industries. How are individual businesses effected by epidemics and pandemics? Businesses within the sectors most impacted by epidemics and pandemics experience the effects of an outbreak first. In Australia, for example, travel booking company Webjet experienced a 10% slump in its share price in late-January following the coronavirus outbreak. Other companies such as JB Hi-Fi and Harvey Norman have said their supply of electronics could be disrupted. Small and medium businesses can often be the hardest hit. Businesses such as restaurants and retailers in tourist hotspots and tourism services companies will be among the hardest hit in Australia over the coming months. How long does it take for markets to recover after an epidemic? Market recovery following an epidemic is dependent on a range of factors. Following the SARS outbreak, for example, the Chinese Government deployed fiscal stimulus to aid in economic recovery. At the time of the SARS outbreak (first quarter of 2003), China’s economic growth was 11.1%. By the second quarter, the country’s economic growth fell to 9.1%. As the outbreak was contained, and fiscal stimulus was deployed, China’s economic growth recovered to 10% by the third quarter of 2003. Looking at other markets, the S&P500 posted a gain of 14.59% following the first confirmed case of SARS. The index posted a gain of 20.76% a year after the outbreak. How will an epidemic or pandemic impact my investments? The economy has changed since the SARS outbreak. China is now a much larger part of the global economy, accounting for around 17% of global GDP, compared to 4% in 2003, so the economic impacts of coronavirus may be more pronounced. The best thing investors can do right now is exercise caution, but don’t panic. Often market corrections provide investors an opportunity to invest into the market at discount prices. To discuss how your investments may be impacted by coronavirus speak to us today. This is general information only

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