On the back of the recent havoc on the Chinese stock market and China’s importance to our economy I thought it worthwhile to have a brief look at our economy.
At a glance:
GDP growth picked up in the March quarter though it was below average recent growth and early expectations are that the June quarter will be flat. Despite this overall lacklustre performance there are elements of the economy that show signs that we have a base that will hold us in good stead.
In depth:
The drop in the Aussie dollar has meant that exports have bounced back and grew by 8%. Exports were dominated by Commodities with LNG exports increasing as new capacity has come on line with even more LNG projects nearing completion. Other commodity sales such as coal and iron ore are expected to remain strong for a few more years, though a decreasing price is expected to see some miners reduce production. LNG sales are not expected to decline over the same period. SMEs can expect to get a flow-on effect from the continuing sales of coal and iron ore, particularly in the labour hire, transport, construction and business services sectors. LNG exports will also offer strong support in labour hire, construction and business services sector.
Service exports have grown over the last year off the back of a lower currency. Tourism and Education have done particularly well in light of Australia’s attractiveness as a destination. Again, this should support SME sales.
Business investment continued to decline over the March quarter mainly as a result of the decline in mining investment. Sadly, manufacturing hasn’t bounced back even with the excess capacity that we have and a lower dollar. I think we are truly seeing the decline of Aussie manufacturing.
Low interest rates and booming property prices in NSW and VIC have resulted in an ongoing investment in residential building. This will also continue to provide growth for SMEs in the building supply, trade and labour hire sectors. Increase builds have created an excess supply and this may at some point result in a slowing of new investment.
A low level of wage inflation appears to have resulted in an increase in employment, notwithstanding a low level of output. The ANZ Job Advertisement survey has trended higher. Low interest rates and increasing property prices have also supported growth in consumer demand.
The overall level of lending has increased with the RBA reporting credit growth for the year ended July 2015 at 6.1% compared to year ended July 2014 of 5.1%.
Surprisingly business credit lead the field with credit growth at 4.8% compared to 3.4% - up 1.4%. Growth in property lending was higher at 7.4%, compared to the prior period of 6.5%, but only expanded by .9%. A positive sign on the business front; hopefully the banks are starting to lend more, particularly to SMEs.
Bankruptcies rose .9% in the June quarter, the first rise since the March 2014 quarter. Corporate Insolvencies rose 39% in the June 2015 quarter compared the June 2014 quarter. Whilst I am sure the ATOs crackdown has had some effect there has also been a big jump in director-initiated appointments with Creditors Voluntary Liquidations up 38%.
So, what does the near future hold?
Stronger consumer demand is obviously a great sign and this will be well supported by a low exchange rate which will continue to help our exporters. Stability in employment also bodes well. The jump in insolvencies is a concern and may have a negative impact on employment and demand. Overall things are looking OK and I don’t see doom and gloom on the horizon.
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