Smoke and mirrors 2.0?

 

A surprise election result, two RBA rate cuts along with income tax cuts and what looks like a stabilising property market;

 

Are we possibly on the road to economic recovery? Wow, what a tricky question to answer, especially considering I’m not an economist and or financial specialist, however I’ll do my best.

So; a few positive things have happened since my last blog post. We’ve had a surprise election result with the coalition winning the election that they were never supposed to win, 2 RBA rate cuts, income tax cuts and what seems to be a stabilising in consumer confidence. APRA has also lowered the regulatory lending criteria making it easier for prospective home buyers to borrow money at a time when the property market seems to be stabilising, with Sydney and Melbourne both registering 0.1 and 0.2 increases respectively in May for the first time in the last 2 years. This is extremely important as people correlate their wealth with the value of their property, this is called the “wealth effect” and this was negatively influenced through the housing market decline over the last 2 years resulting in people being more cautious with their money.

The government is also being urged by the governor of the reserve bank of Australia (Philip Lowe) to bring forward its infrastructure spending/investment and to consider fiscal policy as a way of increasing economic growth.

One week ago I wasn’t as optimistic about the economy as I am today. It is my belief that we are possibly at the bottom of this cycle and possibly on the road to recovery. In saying that there are still some head winds to traverse with the trade war between China and America being the most crucial. If Donald Trump can cut a deal with Xi Jinping then everything may just pan out ok, if not it’s a serious threat to global economic growth, we wait with bated breath.

So what now? Before answering this question ill throw in the caveat that this is strictly my opinion and it shouldn’t be taken as financial and or economic advice!

In my opinion we will see a slow and gradual improvement on the current economic situation over the next 12 months (however this will take time to filter through). The property market should start to rebound with average prices increasing slightly but nothing too ridiculous in comparison to previous growth cycles, eventually stabilising and remaining there over the short term (1-5 years). I don’t think we will see a return to the peak property prices of 2017 for a number of years yet, but property needs to be considered as a long term investment strategy (10 years or more). With the latest RBA interest rate cuts, APRA’s easing of regulatory lending criteria and the possibility of having weathered the latest property cycle decline now past us the opportunity to invest remains for those that are willing to take the gamble on medium to long term investment.

As consumer confidence grows with a stabilising economy and property market the “wealth effect” kicks in filtering through into the construction industry…..hopefully keeping us all busy and working. However the filtering through will more than likely take 18-24 months before we’re all busy again….maybe….hopefully!

In the meanwhile we need to face the current tricky and stagnant construction downturn together. MBS is your mutual business partner through this slow building/construction phase, working hard to continue providing competitive pricing, new products/materials, better delivery logistics and solutions without ever compromising on service. We appreciate that your business success ultimately supports ours!

If you require any assistance with quoting the materials and logistics for one of your projects then please do not hesitate to contact the office on 9666 1000.

 

 

Fernando de Sousa

General Manager