All the talk about a recession. What property investors need to understand about the economy

All the talk about a recession. What property investors need to understand about the economy

Are we in for a recession? Currently  talk of recession remains all the rage.

More people seem to be worried about a recession occurring.

GDP growth in the economy was just 1.4 per cent over Financial Year 2019.

A recession is formally defined as two consecutive quarters of negative GDP growth and Australia has not had a recession since 1990 – 1991’s.

So while we might not technically be in recession, conditions have clearly been weak.

After accounting for estimated population growth, there was a negative result for GDP per capita at -0.2 per cent.

To help you understand what’s happening in our economy in this Think Tank we plan to show you the data from the recent RBA chart pack and also a number of graphs from CoreLogic to help you understand what’s really going on in our economy and our property markets.

And more importantly what’s ahead

We’ve put this Think Tank on because currently there are so many mixed massages out there.

They seem to fall into 2 camps:

  1. The optimists see great times ahead with some commentators predicting double digit capital growth for our capital city property markets on the back of falling interest rates, tax refunds and the bank’s less stringent lending criteria
  2. The other camp – the nervous nellies are worried that the current weak Australian economy  will lead us into a recession and there are still those in perpetual property pessimists who suggest we’re being fooled by our rising property values and they’re about to crash because of our high levels of debt.

It’s normal at turning points in markets to get mixed messages – and that’s exactly what’s happening at the moment

Watch as we comment on the latest charts supplied by the RBA and CoreLogic including :

  • The state of world’s economy
  • Australia’s economy
    • GDP growth in the economy was just 1.4 per cent over FY2019. After accounting for estimated population growth, there was a negative result for GDP per capita at -0.2 per cent. So while we might not technically be in recession, conditions have clearly been weak.
  • Poor credit growth
  • What’s happening to jobs in Australia
  • Construction activity
  • The state of Australia’s various housing markets

But let’s not forget all the good things that are happening

  1. Our interest rate cuts and tax cuts should boost spending . They haven’t so far, but there is scope for further rate cuts (though very limited now) as well as other monetary policies.
  2. Strong population growth will continue to support the Australian economy.
  3. The property market is picking up and this will boost consumer confidence.
  4. Infrastructure spending is booming
  5. The low $A is supporting the economy by aiding Australian businesses that compete internationally
  6. Australia is in current account surplus
  7. There will be a budget surplus in 2019/20 (probably around 0.5% of GDP) and debt to GDP ratio at the Federal level is low so there is plenty of room for fiscal stimulus
  8. Exports are improving minerals, agricultural and eduction
  9. Tourism
  10. Consumer confidence and Business investment is improving.

All this means that if Australia does slip into a “technical” recession it will be very different to previous recessions – it’s unlikely will have significant unemployment and the resulting pain that creates.

The bottom line

Australian economy is likely to remain weak over the next few years.

Wages growth and consumer spending is likely to remain weak and unemployment is likely to rise over the next few years.

Sure our economy is going through a rough patch but a recession seems unlikely in the near future.

Having said that, those investors who take a long term view and recognise that all economic downturns are temporary, while the increase in value of well located residential properties in our capital cities is permanent, will be able to take advantage of the property investment opportunities the current buyer’s market is delivering us.