Masterclass, Money

Simplifying some of the recession talk

Published on September 7, 2015 1:05 pm, by

Politicians are saying not to worry about a recession.  Some Financial analysts say it’s unavoidable.  Back in 2008 when the GFC (Global Financial Crisis) hit, lots of Aussies got a cash injection compliments of the government and were told to spend it.  This was an illustration that to keep the economy moving, money needs to be spent.  Problem is, you can’t spend it if you don’t have it.

Recessions are part of the economic cycle.  And we haven’t had one for a while.  So don’t panic but be aware and be prepared.

We’ve put together a quick list to summarise the signs for and against a recession.  This list is not exhaustive, but rather a snapshot of the points that are currently being raised.

Signs pointing to a recession

  • Increasing unemployment – Less people in the workforce equates to more people on welfare and less money to be spent on consumer goods, holidays etc.
  • Impact of Ford, General Motors Holden and Toyota ceasing manufacturing – this has started to have an impact on increasing unemployment and will continue to do so. This will also drop goods available for exporting and increase the cost of purchasing a car for Australians.     
  • Average wages are falling – wages are falling, and the number of full time jobs available is also falling.
  • Mining investment and construction activity are in decline – The value of coal has decreased. China’s demand for steel is decreasing and the value of iron ore is at risk.
  • Australia’s dependency on China – markets have been volatile in China recently.
  • Low cash rate – the rates have been cut low to continue to encourage spending. Rates cannot be cut much further to free up further spending for home owners.
  • Consumer spending is down – less retail spending. The unending cycle of sales to get people in the door and spending in the stores can be a signal of this.

What may save us?

  • The falling Australian dollar – This makes Australia an attractive holiday destination for tourists. This equates to a more robust hospitality industry and more dollars being spent in our stores.
  • Government spending – although government spending hasn’t been high, it is attributed to keeping Australia out of recession over the last quarter. Government spending can also have the effect of making things look better than they really are.  Note as unemployment rises, the amount of money going to welfare also increases, leaving less money to spend elsewhere (or a growing debt).
  • Income tax cuts and increased GST – although controversial this is a popular refrain from Joe Hockey currently, so needs to be included.

How to prepare yourself

  • Save, save, save – it’s a great time to put extra funds off your mortgage or work on paying down debt.
  • Consider a domestic holiday – If you are considering a holiday think about putting money in to the Australian economy, and with the Australian dollar dropping it’s an expensive time to head overseas.
  • Do your research – if now is a time to invest for you, make sure you are doing your research and/or seeking advice about where you are putting your money.
  • Build an emergency fund – if you don’t yet have an emergency fund, now is a good time to start one. Having back up is always a good idea, a good figure to aim for is 3 months salary.

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Jen is an experienced banking professional who loves wine, coffee, finding a bargain and of course her three beautiful children. Since Jen's first budget led her to buy a home at 20, Jen has passionately helped others to make better decisions with their money.

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