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inventories

Why the Slow Economic Recovery?

The Vagaries of Financial UncertaintyExactly why have industrial companies around the world been slow to recover? And why did everything look so promising … and then suddenly, seem to grind to a halt?

Perhaps some insight into this dilemma was provided by the IMF’s recent World Economic Outlook.

According to Oliver Blanchard (its chief economist), there are the dual influences of a slowdown in advanced Western economies; and the overall financial uncertainty.

During the GFC, companies allowed their inventories to run down. Then, with a hint of global recovery, those same companies began replacing their depleted inventory levels. [Read more…]

Global Progress?

The IMF has recently trimmed its overall global forecast — down to 4.2% from 4.3%, for 2011.

Global GrowthThe emerging and developing economies are tipped to grow by 6.4% (with China’s growth being over 9%).

Whereas, the various advanced economies are expected to grow by a subdued 2.2%, on average.

However, any double-dip recession is considered most unlikely — as investment and domestic consumption has replaced the building up of inventories.

According to the IMF: “Investment in machinery and equipment is already showing strength in a number of advanced economies.”

Nonetheless, spending and investment in most advanced economies will be constrained by households replenishing their savings; and banks remaining reluctant to lend freely to businesses. Plus, the US housing market still languishes.

Overall, the lack of business investment (and therefore employment growth) will adversely impact on tax revenues. And thereby, make government debt reduction programs a slow process.

On all counts, Australia will continue to enjoy solid growth — relative to other advanced economies. And this will provide ongoing pressure for interest rates to rise, over the next three years.

All the more reason to lock in your interest rates long-term … for any Commercial property investments you intend to make.

The Future for Interest Rates

The RBA’s underlying rate of inflation rose by 3.5% in the year to September — less that what the markets and the RBA itself expected.

However, this figure needs to fall significantly for the RBA will put interest rates on hold again.

Rate Rises

Rate Rises

With low inventories and industry capacity-use levels up over 80% once more … you could well see the economy reach full capacity sometime early in 2010.

And this was highlighted in last week’s job figures — showing employers took on 24,500 new workers in October, compared with the 10,000 expected.
[Read more…]

Australian Commercial Property is Runnning Its Own Race

Unlike the US and Europe, Australia has not suffered a banking crisis. Therefore, our banking system is still capable of providing credit for normal growth.

With the US unemployment rate approaching 10%, this will delay any quick turnaround for the Commercial property sector.

Decoupling from the US

Decoupling from the US

As you would expect, there is a strong correlation between high unemployment, tenancy contractions and falling commercial property prices. And as a result, a reluctance by banks to provide credit.
[Read more…]