Before we get into details, let’s revise some fundamentals. We know the economic cycle has four phases: Expansion; Peak (or boom); Contraction; and Trough (or recession).
Businesses thrive in the expansion or peak stages, where economic activity is at its strongest. Customers here or overseas may buy more from you and pricing is not as tight. Confidence and profits are high (as are taxes, but that’s what we’re here for!). The only hurdle in this phase is finding good employees, as they all seem to have jobs.
Australia hit its peak around 2010 and quickly moved onto the contraction stage, which is traditionally where the economy (and your business) starts to slow down. You may not be able to sustain the growth you’ve previously experienced and need to reduce equipment or staff to balance your income and expenses.
So does this mean the Australian economy is heading for a trough in 2015? Let’s take a look at the numbers.
The Australian Dollar
The AUD is at 0.87 USD as at 14 November. The Reserve Bank is predicting it will fall to 0.86 USD by December 2014 and to 0.80 USD by December 2015. A falling Australian dollar means that Australian exports will become cheaper, with an increase in demand for Australian businesses that export. If you are an importer, the price you pay for imported goods will rise and you’ll need to find other cost savings to maintain good profits.
On 4 November 2014, the Reserve Bank chose to leave the cash rate on hold at 2.5%, a record low rate for Australia. The Reserve Bank has kept this rate on hold for 15 consecutive months, to stimulate the economy and make sure we don’t slip too deeply into contraction or recession. It plans to continue this strategy in the near future, stating that ‘continued accommodative monetary policy should support demand and help growth strengthen over time.’
Australia’s unemployment rate for October 2014 remained at 6.2%, unchanged from September. Unemployment rates in Australia averaged 6.91% from 1978 until 2014, reaching an all-time high of 10.9% in December 1992 and a record low of 4% in February 2008. At 6.2%, we’re looking pretty good with relatively low unemployment. However, if it falls too low it means wages will increase and it’ll be harder to find good employees.
Building approval rates
Data shows that the number of building approvals remained steady in September 2014, continued the trend for the past two months. House dwelling approvals have been declining slowly for the past six months, which could be a concern if this trend continues, as a lift in building approvals is one of the signs of a recovering economy.
In summary, Australia’s key economic decision-makers are doing all they can to keep our lucky country in the contraction stage, to avoid the trough of a recession. Although our businesses may not be shining as brightly as we like, it looks like reasonably clear skies ahead for 2015.
Data provided by Australian Bureau of Statistics.