Just like a jigsaw puzzle cover box, Australia’s economy has a picture. As to what it’s trying to create economically in these challenging circumstances. With so many pieces to this puzzle, being interest rates, inflation, the property market. And Also many other factors – here’s how they all interrelate and what this all means:
The Economy as it Stands
Digesting the economy as it stands right now appears to be an arduous task for many economists given how people feel. And Also what the figures are actually reflecting present two very different stories. Host Andrew Baxter says that the Aussie economy is being fuelled by two main factors – a raging property market with artificially low interest rates and iron ore prices. Despite the performance of these two areas of our economy being so stellar. They now appear to be somewhat out of kilter, hence a cause for concern. Other areas of our economy aren’t really stacking up. And so the outlook for where we might be heading. As much as we hate to be. The prophets of doom. And may be a little more challenging than what most people would suspect.
The Delta Variant and China
As our largest export partner and the second largest economy in the world. The China effect can be quite substantial for us here locally in Australia. Amidst Chinese lockdowns with their outbreak of the Delta variant. Also, many suppliers saw this as a sign of economic slowdown and thus less demand for products like iron ore for steel production. With commodity prices tumbling and there being talks of trade tariffs with our most prominent trade partner. The Aussie economy has some challenges ahead. Kind of like a table. It appears as though this leg holding the whole thing up. And it is slowly getting shorter, meaning more of a chance that this table is getting a little wonkier.
Inflation and Interest Rates
Let us ask you this – how much has your grocery bill increased in the last year? Or what about the cost to fill up your car? Your healthcare expenses? Seeing it for what it is – inflation is running rampant in our economy. Although the official CPI figure remains at 3.8%. The real rate of inflation, says host Andrew Baxter, is probably closer to 10%.
As a couple of examples, for the month of July, fuel prices rose by 6.4% and healthcare by 2.4%. The increase in the real cost of living is becoming prohibitively expensive. Especially considering there really is no wage growth whatsoever sitting at just 1-2% per annum to supplement this. The challenge for the central bank is to increase or not increase interest rates as yes. And a small jump would certainly help curb inflationary pressures. However, this would be dire for the property market. As those geared to the hills unable to service repayments on their mortgages. It comes as no surprise that this decision is currently drawn out for as long as possible.
Business Confidence Already off the Boil
Forgetting consumers and households for a minute. Let’s talk about businesses given they’re a major driver of our economic performance. It’s hardly surprising considering our current environment of snap lockdowns. Also, COVID-19 outbreaks that business confidence has come off the boil. For those small businesses who maybe rely on tourists or foot traffic to survive. And who are now mostly out of government support.
How can you have any level of confidence about the future? With more uncertainty comes more risk in this area of our economy. Unfortunately, there is no way to prevent against lockdowns. As it is totally out of our control. Nonetheless, it’s a timely reminder that unless our vaccination rates improve – we may remain in this fluctuating environment for a while.
Having a Game Plan
In what is a very uncertain economic environment. And professionally trader and economist of 28 years. Andrew Baxter, says having a game plan is crucial. The way to play this is to get your money invest so that you can proof your future. And holding cash at the bank offers no incentive. The property market has become prohibitively expensive.
The business environment largely uncertain. And so the stock market is where Baxter recommends playing for most everyday Aussies. And what you can control is what kind of investment decision you’re making. Also what level of risk you’re comfortable with – a necessity in this economic whirlwind. To learn exactly how to do this. With this reach out to Andrews team at Australian Investment Education.