Australian interest rates have fallen, consumer confidence is up, unemployment is down, and the Australian share market has hit its lowest point in 2 ½ years. Furthermore, the Australian dollar is hovering around US80 cents and oil has now fallen below $92 a barrel. The US stock market has just had its largest fall in a single day since the crash of 1987!
So what is going on? What does all this news mean? It can be hard to decipher the positive news from the negative, and even more importantly how every piece fits in the economical puzzle.
Importantly, the Australian economy has been extremely resilient and the nation as a whole looks like it will avoid recession, although New South Wales is now officially in recession. How one State and no other can be in recession is hard to fathom, however, it’s simplest to point the finger directly at the individuals in Macquarie Street that continue to mock the purpose of State Government.
The resources boom has certainly helped States like Western Australia however other non-resource States like Victoria, South Australia and even Tasmania are all moving along nicely. Politics in “The Premier State” is beginning to look like Italy where it’s expected that Governments will constantly change and waste millions of dollars on businesses that they have no expertise to operate.
The Italians spend over $1 million per day propping up Alitalia and the New South Wales Government just can’t get anything right – electricity, water, education, health. The list of failed State Government owned enterprises is endless and yet the economic outlook for Australia is good.
Whilst a further interest rate cut looks almost certain it would help if it were sooner rather than later. It will be difficult for Reserve Bank Governor Glenn Stevens to justify holding rates where they are with the NSW Government running the state as if it were a social experiment. The importance of NSW to the overall Australian economy should not be underestimated and even with inflationary and employment pressures to consider it would seem that Mr Stevens will have to play a large role in resuscitating NSW.
My tip is that there will be a further cut in official rates in October of 25 basis points and with the global stock markets in disarray property is looking better and better as an investment option. If rates fall and the banks are willing and able to lend to would be purchasers we may be in for a very positive Spring and Summer real estate season. With NSW property sales volumes down 44% on 2007 figures and the rest of Australia struggling to gain traction the Reserve Bank should be primed to kick start the real estate market. We can only hope!