Looking beyond today’s negativity

Smart companies should look beyond today’s negativity to see what is happening in the UK, US and European economies that are all are heading for significant expansion.

The equities market is heading for all-time highs, the housing sector is recovering and the risk of inflation is so stable that the RBA is considering another rate cut.

The Reserve Bank of Australia governor Glenn Stevens believes it would be “desirable” to see a stronger expansion in other sectors of the economy as the mining investment boom ends. “While there are signs of an increase in dwelling investment getting underway, a stronger trend in non-resources business investment looks like it is a while off yet,” Stevens said this week.

Next Tuesday will see a .5 cut if things are as glum as the opposition anticipates until they replace the Treasury officials and .25 if the Rudd return continues to gain momentum. Financial markets are now pointing to a greater than 80% chance of a 25 basis point cut in the cash rate to a low of 2.5%.

As our banks go into a funk at having to meet the RBA’s request that they insure against future failure from their record profits, smokers fume as they reduce their prospects of health failure, and leasing companies face the demand for fraud avoidance, we can expect collateral damage from both sides of the domestic doom and gloom promoters

Shadow treasurer Joe Hockey blames the government for the general lack of confidence and rising bankruptcies of the past year; despite interest rates being at record lows.

“As the governor of the Reserve Bank says, business confidence is affected by ad hoc decision-making and unpredictable decisions,” Hockey said.

There is a consistent demand for greater consultation by Treasurer Bowen so that campaigns against cuts can be better co-ordinated in the run up to the election.

What every small business needs to know is that the economic reality for the next few months is likely to be very different. The latest NAB Business Confidence Index (June) showed that car registrations and industrial production was on the rise. In reality, the Westpac and Morgan Consumer Confidence indicators suggest that the public has returned to around the average for Australia since 1974.

This week’s Roy Morgan Consumer Confidence Rating rose slightly to 118.1 (up 0.6pts in a week since July 20-21, 2013) as a result of a rise in confidence about economic conditions in Australia over the next 12 months.

Now 32% (up 4%) of Australians expect ‘good times’ economically over the next 12 months compared to 27% (unchanged) that expect ‘bad times’ for the Australian economy.

Over the longer term 35% (up 1%) of Australians expect the Australian economy to have ‘good times’ over the next five years compared to 18% (unchanged) of Australians that expect ‘bad times’ for the Australian economy.

Now, 40% (down 1%) of Australians expect to be ‘better off’ financially over the next 12 months, while just 13% (down 1%) expect their family to be ‘worse off’ financially.

There is strong evidence that entrepreneurs are becoming more confident about jobs and incomes and more likely to make investments and purchases to take advantage of export opportunities. The Chinese economy is being transformed for longer-term stable growth in excess of twice that of the US economy that will grow at greater than 3.5% over the coming months.

Gary Morgan says, “Consumer Confidence is virtually unchanged at 118.1 (up 0.6pts) – now at its highest in nearly three months since early May. The rise in Consumer Confidence was driven by increasing confidence about the Australian economy over the next twelve months with 32% (up 4%) of Australians now saying they expect ‘good times’ for the Australian economy.

“The steady Consumer Confidence is in contrast to the Roy Morgan Government Confidence Rating, which fell 11pts to 104 this week, the lowest it has been since Kevin Rudd returned as Prime Minister just over a month ago in late June. The reason for this rare divergence in the two indicators is likely related to the key social issue of the last few weeks – asylum seekers and border protection.”

Now is the time to invest in skills replacement, training and development outside of the mining sector and prepare for a consistent, steady post-election cycle of growth.

Dr. Colin Benjamin OAM is the chairman of Cultural Infusion Ltd and director general of the Life: ‘Be in it’ Australia charity.