Collision course

As we head into budget week and the market begins its inevitable response to the declining confidence in conversion from public stimulus to private equity, smart companies need to prepare for a slow down in demand from cautious customers.

Aussie banks and through the super funds, consumers have accumulated more than 10 billion dollars in profits in the first half of the financial year.

Around the globe bond prices are falling and commodities are in retreat as speculators recognise that they are on a collision course with sovereign governments that are determined to create space for private sector recovery. Its pay back time as concerns about the inflationary impact of the tsunami of quantitative easing and bailouts of the merchants is reversed.

The real issue is not how fast the national budget returns to surplus but how committed is treasury to enabling small and medium business to have greater access to credit and jobs growth when they want scope for big business investments in the commodities markets.

Smart companies need to have access to capital as the commodity market pulls back, expectations of windfall profits decline and stimulus measures are withdrawn. At the same time banks are concerned that the huge profits that have come from falling levels of defaulting loans may reverse if they open their wallets without stringent due diligence and solid capital repayment guarantees.

The US and Australian economies have been on life support drip feeds since the GFC and the banks have had a field day with government guarantees and a flood of consumption oriented funds. Now the pendulum swings back and there is a political race to the bottom of the credit barrel that will make it hard for smart companies to access funds based on last year’s rate of growth.

Taking steps to avoid over-trading and sound investment in staff training, advertising and business development will pay substantial dividends tor those companies that can defer dividends and cap costs. It will be a struggle between cautious optimism and a dose of realistic strategic thinking.

Customers continue to expect that there will be real cuts in the budget and that savings are the preferred path to the future and believe that the value of their homes is no longer a shield against rising costs of living.

Gary Morgan says that Consumer Confidence has fallen 3.4pts to 117.2, its largest fall since February 26/27 — the weekend after Julia Gillard announced the Government’s intention for a carbon tax. The biggest falls are in consumer expectations about the prospects for the Australian economy and concerns about Tony Abbott’s predictions of a series of “great big new taxes” to increase household costs of living.

Worries about the Australian economy over the next 12 months were the biggest driver behind this week’s fall in optimism with 38% (down 5%) of Australians expecting ‘good times’ for the Australian economy over the next 12 months.

Business can expect a very tough beginning to the next financial year but this is not the time to lose heart. Overall growth in the US economy and a significant fall in the US doallr early in the new year will create a sound path for revitalised exports and the benefit from forward orders on import opportunities.

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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. Colin is also a member of the global Association of Professional Futurists.