MOVING FORWARD - WHERE IS THE ECONOMY HEADING?

Federal and state governments have been remarkably generous in their financial packages. At some point we will have to repay the debt.

CEO Richard Suttie

By Richard Suttie

 

Without doubt the last 7 weeks have seen a dramatic change is people’s perception of the economy. The ASX fell from 7162 points to 4546 on 23 March 2020. It has since rebounded to 5461 as of Monday 11 May 2020.

The property market has seen some reductions in value and the “so called” experts are predicting it will fall even further.

There is so much uncertainty with this virus that it is difficult to predict what will happen in the next 12 months, but investors should ignore the paranoia of the media and look at the following:

  1. The world is united in finding a cure/vaccine for this virus. The world’s medical/research capabilities are amazing and for the first time in history everyone is working collaboratively to find a cure. Hopefully this will not be too far away. As soon as it is available the world will recover financially and economically much more quickly than the doomsayers are claiming.
  1. Governments around the world are much more focused on rebuilding their national economies than ever before. Politically they cannot afford to have large levels of unemployment. There will be a massive focus on employment once a cure/vaccine is available. Infrastructure will be a key focus of all governments to create employment and this will generate a considerable amount of spending.
  1. Despite what has been written in the press, the reality is that in a mild flu season 290,000 people per year die from influenza, and 640,000 people die in a bad season. (based on WHO statistics) We currently have a flu vaccine which restricts the number of cases so these statistics in perspective are a lot worse than the statistics for Covid-19 which doesn’t have a vaccine. Strangely, influenza is not considered to be a pandemic, however it is nowhere near as contagious as Covid-19.
  1. The world is far more resilient financially and economically than its ever been historically. Once restrictions are lifted, we will rebound from our current situation. The biggest risk will be people overcoming the fear that the media has instilled into everyone’s brains – 97 people have died in Australia from this virus. That is less than 4 people per million. It doesn’t compare with heart attacks, cancer or the road toll.

 

Entering The Recovery Phase

As recovery is underway the biggest issue confronting Australia will be our national and state debt. Federal and state governments have been remarkably generous in their financial packages. At some point we will have to repay the debt.

I hope that before the end of this year there is a bilateral agreement between both major political parties that GST should be raised to 15% as from 1 July 2021. This will result in everyone paying off the national debt based on their consumption. It would be ridiculous for state governments to raise taxes such as land tax and payroll tax which will only put further stress on businesses which are currently under enormous pressure to survive. The additional tax raised from the increased GST could be partly allocated to state governments to assist them in balancing their books.

If you are an investor you should consider the fact that most of our shares are now a lot cheaper than they were 8 weeks ago. If a company’s fundamentals are really strong then there is justification in investing now rather than waiting to see what happens.

The biggest risk for an investor buying property in today’s market is the potential to not have a tenant. If you have the capital to sustain a loan for the next 6 months then if you are presented with a discounted property you should consider acquiring it. There are a number of vendors who have been forced to put properties on the market and if they are prepared to sell at a discounted price then that is an opportunity which is worth considering. Interest rates will probably remain low for the next 12 months so your holding costs will be affordable.

Disclaimer

Richard E Suttie Pty. Ltd. Trading as Suttie Financial Group.

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