Spring economic round up

There’s something about the first day of Spring, that makes people feel optimistic about the future and upbeat about all things including their investments and financial future. But what are the economic indicators telling us?

Federal Government changes to the rules surrounding capital gains have prompted a fall in house prices across the country, unemployment has taken a step up and excessive Government spending at all levels is proving a drag on economic activity.

Small businesses insolvencies are estimated to be close to 14,000 across the nation during the past year, with the construction and hospitality sectors experiencing the highest pressures and greatest numbers of failures.

Victoria’s economic numbers appear strong, spurred on by high migration numbers and strong population growth, but the state is labouring under a $165 billion mountain of Government debt – the largest of any state Government.

Regardless of who wins the upcoming election, there are some tough years ahead.

The headlines are full of Australians suffering under a ‘cost-of-living Crisis’ and for many people, particularly those struggling to keep ahead of rental increases, that is true. More, there seems to be little relief on the horizon.

The most recent statistics show household expenditure grew by 7 per cent for the 12 months to July, its fastest rate in at least three years. This is despite the Reserve Bank increasing interest rates to stall this exact figure.

Strong spending by mums and dads across the country on take away food, rents and fuel, means that the very slow down these rate hikes were meant to create have not happened. In fact, the opposite has happened.

In almost every category the Government measures when calculating the inflation, spending has increased. While the focus has been on higher fuel prices, domestic spending has surged with spending on dental services up 3.8 per cent, car maintenance up 5.9 per cent haircuts up 4.4 per cent.

The Reserve Bank will not be swayed by reports of families under financial pressures. Interest rates will be forced higher in order to get inflation, which is remaining stubbornly above 3 per cent, back between 2 to 3 per cent.

Monetary policy is a clumsy economic tool. It will eventually succeed in cutting spending but at the same time this will cause further falls in the price of housing and cause more businesses to hit the wall.

Caution is the order of the day. Times will get better but, in the meantime, batten down the hatches, cut back on spending where you can and think twice before taking on any new financial commitments.