Posted by By at 10 July, at 12 : 46 PM Print

ConfidenceA self-fulfilling prophecy

Australia has the potential of talking itself into a recession, but it needn’t be this way.

Amid weakening confidence in all forms of government bureaucracy and drivers in the economy, the road to recession in Australia could be a self-fulfilling prophecy. That is unless we can find an inspirational catalyst to stop ourselves ‘talking’ our way into negative growth, says national property, business tax accounting and wealth advisory group Chan & Naylor.

“Despite the recent mention of the dreaded ‘R’ word and higher unemployment caused by the inevitable changes in certain market cycles, Australia remains a lucky country with plentiful opportunities for business and private investors alike,” says Ken Raiss, a director at Chan & Naylor, who contends that the country needs a fresh economic reality boost to drag Australians out of their current malaise.

“In the resources sector we are seeing the completion of the construction phase, but at end of construction comes production,” he says. “Because this sector will now necessarily employ less people it will lack the same visibility as the past decade; nonetheless it is a sector that has plenty more to give.

“As a high skills/high wage economy, Australia’s leaders must focus on improving productivity to help support the high standards of living that Australians are used to. Inevitably this will require other industry sectors to bridge the gap as the resources sector recalibrates.”

The continuing fall in Australia’s exchange rate also points to better fortune for the export market including manufacturers, and despite current low business confidence Ken says that there are other indicators of economic growth that should be seen as encouraging.

“With the lowest interest rates in recent history and a share market correction seeing a lot of shares more realistically priced, investors now have greater choice on where to put their money. We are also seeing an improvement in the housing market in most states, although caution should be used when considering investment in former mining boom areas.”

Ken also argues that the current government’s monetary policy, which has allowed the major banks to not pass on lower interest rates, has had a weakening effect on the economy,

“Taking into account the cyclical nature of key markets, this skew has created a convergence of tighter finance with the suppression of house prices,” he says.

“While we need a wealthy banking sector, the cost of this aggregation has resulted in limited new property development and uncertainty in the eyes of investors. We have traded in a potentially stronger retail and manufacturing sector for an extremely profitable banking sector. Surely there is a middle ground.”

As the housing market shows signs of improvement, Ken urges the current and future government to counteract this skew towards the big banks.

He also sees encouraging signs in the superannuation industry, particularly in the maturing self-managed sector, which is being driven by improved financial literacy and the growing desire among Australians who ultimately want to generate an independent income for their retirement.

However Ken says that multiple changes made to superannuation combined with the government’s policy to have external bodies review these changes is denting investor confidence.

“The sum of all this is that we are suffocating under bureaucracy and uncertainty,” he continues.

Aside from cutting the red tape, Ken says key growth opportunities will only be realised if Australia becomes more opportunistic in capitalising on the same momentum that is propelling a number of our regional neighbours.

“We are a lucky country,” Ken says. “As well as our raw materials, other industries such as high quality health and education, tourism and advanced manufacturing can thrive and survive in this Asian century if we are shown how.”

The Chan & Naylor Group is the leading National, Property, Business, Tax Accountants and trusted wealth planners in Financial Planning and Finance Brokering.


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