The Year Ahead

By Jason Fittler,

First let's recap history. 

In October 2007 he GFC started. The GFC was caused by loan defaults in the US, which lead on to debt securities owned by investors becoming worthless.

The size and scope were so large that it affected all major America Banks and investors globally as many global fund managers held these investments for their clients.

The GFC took until March 2009 to finally bottom, up until this point only investors had been affected. The value of their investments had fallen substantial and large capital losses were made.

However, Australian companies at large had not yet really started to cut costs, like always everyone was expecting and predicting a quick recovery. It was towards the end of 2009 when companies had to start to reduce expenses.

You may remember that the Government embarked on a massive spending program to try and keep the economy moving. This included the insulation bats, solar, cyclone cash, school building fund and one in 2008 when they just gave you $600, for most of us anyway.

Once these cash handouts stopped retail spending slowed.

Around the same time, the Carbon Tax and Mining Tax were coming into play and were introduced in July 2012. This truly put the brakes on the economy as the major miners now started to look globally for investments.

It was also around this time that our Iron Ore and Coal exports had peaked. Combine these things together and you have the perfect ingredients for an economic slowdown. 

Keep in mind that the economy is a big ship and it takes a long time to slow. But slow it has, and now all Australians are feeling the effects of the decisions made during the GFC.

Where are we right now?

High unemployment, record bankruptcies, slumped property prices and volatile stock markets.

Our Government is dysfunctional and unable to make the necessary changes to start to rebuild our economy.

However, interest rates are at an all time low, the exchange rate is around the $0.85 US which means support for our exports and the oil price is at a 6 year low which reduced household expenditure and expense for business. The Carbon Tax and Mining Tax have both been removed again reducing costs for business.

The next 12-months.

I keep hearing that the economy will recover in the next 6-18 months.

This is a load of rubbish.

What will happen is that the unemployment rate will stabilise. People will start to settle into the new economic norm. They will stop worrying about losing their job and will reduce their expenses and start once again to focus on the future instead of worrying about the now.

Our market will be flat, but I expect to see opportunities in the US and Europe especially as Europe slowly starts to recover over the next 3-5 years.

The government will clear the way for infrastructure spending and start to create jobs (this will not be a boom).

Interest rates will remain low and property prices will be steady or drop a little more.

Workplace reform will start as people will start to understand that it is better to be worried about losing a job then about trying to get one.

Oil prices will stay low, but this is another story.

And I expect the exchange rate will stay around these levels pending on our interest rate.

For the average Australian it is time to reduce debt and save money. It is not a time for increasing debt.

Our economic recovery is just about to start, but it will take time. 

In 5 years, we may start to see boom times again.