Economic Update: April-June 2021

Economic Update: April-June 2021

Updated on 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: July – September 2020

Quarterly Economic Update: July – September 2020

Updated on Finance, Investing

COVID-19 remained the big story of the last quarter. Tragically, by the end of September the pandemic had caused over one million deaths. That was up by 500,000 since the end of the previous quarter, and many countries were experiencing devastating ‘second waves’. While most of Australia managed to keep case numbers of coronavirus at very low levels, Victoria provided a case study in the severe human and economic impacts of having the virus escape control. Now it is epidemiologists, rather than economists, that we look to for advice on how to transition to a post-pandemic world. Unemployment ups and downs The official unemployment rate from the Australian Bureau of Statistics was 7.5% in July, but showed a welcome drop to 6.8% in August. Meanwhile, NSW claimed that 70% of jobs initially lost in the pandemic had been restored. However, when JobKeeper, people working zero hours but classified as employed, and a big jump in gig workers are taken into account, the real unemployment rate is much higher. Roy Morgan estimated that the actual unemployment rate is closer to 13.8% and the combined unemployment and under-employment rate is 22.8%. Still, both these figures were down from their peak in late March. Property problems The major property markets of Sydney and Melbourne declined for the fourth month in a row, with the ABS reporting that in the June quarter these major city housing markets dropped by 2.6 and 2.8% respectively. And the outlook for housing construction is none too rosy. Australia relies on immigration to generate the population growth that stimulates construction and supports the prices of existing dwellings. With our borders effectively closed that population growth will either be delayed or will fail to materialise. Rental income is also expected to decline, particularly in markets with a high proportion of overseas students who are unable to return to Australia. The markets After a bit of a rally through July and August the local share market ran out of steam, with the S&P 500 index finishing the quarter down by 1.4%. International markets continued to produce some excitement. Despite weakening a little towards the end of the quarter the MSCI All-Country World Equity Index rose 7.2%. Much of this was attributable to the US market with the S&P500 up 7.6% and the NASDAQ up 10.2%. The Aussie dollar also weakened slightly towards the end of the quarter, finishing flat against the Euro and British Pound, up 2% against the Yen, and up 3.8% (from the high 60s to low 70s) against the US Dollar. The outlook If you thought that interest rates couldn’t go any lower, think again. The RBA has flagged the possibility of a further cut in the cash rate with commentators predicting a cut of 15 basis points to take the rate to just 0.1%. Internationally, the US presidential election could see an increase in market volatility with the final outcome anything but certain. For further information on current market conditions, contact us.     The information provided in this article is general in nature only and does not constitute personal financial advice.

The true cost of a pandemic

The true cost of a pandemic

Updated on 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

End of content

End of content