Interest in interest

Now that Julia is in the final stages of clearing the decks for her drive back to see the GG, all attention will now turn on the very independent decisions of Glenn Stevens. While the RBA’s cash rate is likely to remain unchanged until the end of the silly season, it is likely that there will be significant movements in international support for the Australian dollar as it loses its attractiveness as a currency speculation offer.

The only constraint upon the RBA continued desire to maintain the value of the dollar by raising interest rates may be the fact that business and consumer confidence in the 16 nations that use the euro hardly moved in June, according to an EU survey published last week that points to a slow and uncertain economic recovery in the region.

In the US consumers are increasingly worried about jobs and the economy, the Conference Board recently reported as its consumer confidence index plummeted to 52.9 in June – the lowest level since March – from a downwardly revised 62.7 in May… Respondents saying they expect business conditions to be worse in six months rose to 14.9% in June from 11.9% in May, while the percentage of those expecting better business conditions fell to 17.2% from 22.8%.

There will be intense interest in the interest rates as retail expenditures rise, tax rebates flow into the household sector and Australian investors take their savings out from their havens. Let’s not forget that shareholders have transferred more than $90 billion into company shares since that long forgotten crisis. Westpac Banking Corp Chief Economist Bill Evans has been closely watching the gap between Australian and international levels of consumer confidence and does not see much risk of a GFC type of financial crunch for small and medium enterprises in this country.

Evans says: “With Australia’s requirement to fund a large external deficit mainly through bank borrowing the recent increase in bank funding costs is extremely unwelcome and may jeopardise the recent encouraging rebound in credit growth. Watch out for a return to higher costs of marginal capital for small business expansion if European sovereign debt continues to spook the market and the Obama administration decides to support the calls for a massive cut in national deficits.

Wayne Swan was able to strut the G20 stage, despite the questions as to what happened on the way to the forum, talking up a write down in the stimulus package against the threat of sovereign debt defaults and pleas for the big players to continue to stimulate employment growth.

It is generally conceded that the banks and large financial institutions have had only a shave and not a real haircut and will improve their returns to equity through efficiencies and further cost cutting. This bodes well for smart companies that have focussed on market expansion and strong export development for 2011.

The early signs suggest that we will have a short sharp election campaign around the ‘moving forwards” theme that covers up the moving on from Kevin on the one side, and a continuing ‘only good big new programs on mental health and parental leave’ from Tony. This means that consumers are likely to adopt a wait and see approach to household consumption and continue to downsize their purchasing profiles for the next few months.

International linkages via the web and marketing networks will be the key to smart company profits in the coming year. Plan ahead for a consistently better new year for imports of quality products and new technologies from both European and North American manufacturers that have improved their rate of innovation, cut their operating costs and developed agents agreements to market their products beyond their domestic markets.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099