Recession – is it different this time?

So we’re currently going through our first recession for 30 years as the fallout of Covid-19 restrictions hit our economy. Anyone under 50 has heard the stories from their parents about the high level of interest rates (17%) on their mortgages back in the early 1990’s what is often forgotten and what makes this recession different is back in ’91, Inflation was running between 7% and 10% and unemployment rose to 11% and took three years to slowly drop back to 8.3%.

Leap forward to 2020 and interest rates are at all-time lows with many new loans starting in the 2% -3% range, our national inflation rate has been sagging along at under 2% a year for the last 5 years suggesting that our economy had been struggling for many years before now.

Unemployment is floating between 7% and 9% (higher again in regional areas as the favourable benefits of Job Seeker see small business struggle to find people to work when they can stay home and receive benefits without any requirement to look for work) and could rise higher if we can’t get the economy back and running soon.

Our domestic automobile manufacturing industry has finally been put to rest after many years of being subsidised by government handouts to stay competitive, our traditional bricks and mortar retail industry has been dwindling as it comes to grips with tech enabled sales platforms, it could be argued our housing industry has been stumbling for many years as stimulus after stimulus is thrown at first home buyers to lock them into ever increasing home mortgages.

The fascination Australian’s have with investment properties and investment debt (often to obtain a sizable tax deduction) may start to hurt now as the banks (who graciously allowed mortgage holders to defer repayments during the first wave of stimulus to Australians) are getting ready to cease the moratorium on repayments at a time when many are not in a cashflow position to easily do so. Some banks are seeking to ask customers with investment loans to sell the property and settle up their debts if they can’t make repayments now.

Some state governments have extended to timeframe that landlords cannot increase rents, Victoria is now out until Dec 31 whilst surprisingly the WA govt has extended the deadline out to March 28th 2021, surprisingly as the WA economy is on the rise, although with the hard border closure to other states, it will be interesting to see how many east coast Aussies take the plunge and move to WA for work. A move made easier by BHP’s recent commentary around supporting West Australian employees for most roles.

So being in a recession can be a tough time for many, but like winter, it will pass. It is a part of the economic cycle, business models that haven’t evolved can easily struggle in recessionary times, and as with any crisis, there will be opportunities for some businesses to thrive and prosper into the post-recession environment. One key for this recession though is to keep people feeling confident about their employment and their financial stability so that when the lockdowns are over and people get back to work, they have the dollars to go out and support the local businesses in their community.

Blog originally publised on linked 14th September 2020

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