Changing dynamics in the Australian economy

07 September 2011

Businesses across Australia are entering a testing period as new dynamics in the Australian economy challenge consumer and business confidence.  That was the message coming through loud and clear at the annual Macquarie Relationship Banking Market Focus events held across the country in August.

But while there may be some bumps on the road ahead, digging a little deeper into the drivers of this current state of play provides a solid foundation from which businesses can review their strategies and make informed decisions about their future business plans.

Presenting to more than 590 of Macquarie’s clients across the country, Richard Gibbs, Macquarie Group’s Global Head of Economics, told the story of a nation of worriers; an Australia distracted by global concerns. Looking beneath the stark global headlines and focusing on our domestic economy, a strong trend towards security is emerging. 

The household savings rate in the March quarter increased to 12 per cent, the highest level seen in 25 years.  While in the context of global uncertainties this move away from spending and towards savings is to perhaps be expected, what is surprising is when this is taken in a more localised context within a robust labour market with little real risk of rising unemployment.

Australian GDP growth continues to be buffeted by headwinds with future growth expected to fall short of expectations.  For businesses, subdued consumer demand coupled with rising costs is causing a dip in all states.

With the real estate market being a key indicator of consumer confidence and spending, Macquarie Capital Real Estate Strategist Rod Cornish added a property focus to Mr Gibbs insights.

With such a high proportion of variable rate home loans, the Australian housing market is heavily influenced by monetary policy.  While rates are currently perceived to be towards the top of the interest rate cycle, they are not expected to stabilise until 2012.  In terms of affordability, which measures the proportion of household income needed to meet home loan repayments, Melbourne is reaching its tipping point, the point at which house prices begin to fall, and is expected to experience an extended downswing.

Affordability in Sydney remains below its historically high levels, and while Brisbane and Perth remain reasonable in terms of affordability, they are both being impacted by other factors.  Perth is experiencing volatility and uncertainty caused by the global economic outlook, and Brisbane is experiencing a soft economy partly driven by the floods earlier in the year and partly due to the weakest inter-state migration levels since 1981.

Providing a snapshot of economic and investment insights, Macquarie Relationship Banking’s Market Focus events provide an opportunity for clients to gain insights into what’s driving economic trends and to reflect on how this may impact their business.

Take action

• In the current economic environment where do you see the challenges or opportunities for your business?
• Is your business set up to withstand any such challenges or do you need to adapt?
• Are you making the most of the expertise and support that your third party ‘business partners’ can provide?