There are some interesting outcomes emerging from a wash-up of the recent financial turmoil.
Australia has fared best among the Western countries, with its unemployment rate at only 5.3% and falling. But does this now mean you’ll start to see wage pressures emerging?
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It might surprise you to hear this, however …
h3. A Strong US Recovery
… would probably be the worst thing to happen for Australia in 2010.
If that occurs, the US Federal Reserve would be forced to quickly raise interest rates, from zero to around 3%. And that would cause the collapse in the Australian dollar from its current level of around US90c.
Up until now, Australia has been shielded from inflationary pressures, with a high dollar holding down the cost of imports.
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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
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.
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Clearly, many households and first home buyers will have reason to complain … but someone had to step up and show leadership. And it certainly wasn’t going to be the Labor Party.
The RBA's Reasons for Increasing Rates
Rather than simply basking in the recent praise from the IMF and other G20 members.
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Balancing Act
If that’s the best we can do … what levels will inflation finally reach, once the economy moves into its recovery phase?
Strong sales have seen retailers cutting prices less than expected. And generally, other prices have held firm — because wages have not yet been affected by increases in unemployment.
On top of this, there are also serious supply constraints on the housing front, which are pushing up rentals.
h3. How will this affect things? [Read more…]
In an earlier article, I gave you a bullet-point comparison of how things are NOW … compared to the early 1990s … in relation to Commercial property.
Anyway, here are some very revealing graphs — based upon figures from the RBA.
Now & Then
As I mentioned in a recent email to some Clients, it’s been surprising how few quality properties have been forced onto the market — given the difficulties caused by current global turmoil.
You’ve heard so much lately as to how bad things are. But let’s undertake a quick comparison for Australia — between 1990 and now.
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During October, business borrowing actually expanded by a healthy 1.1 per cent — to be 13.2 per cent for the 12-month period.
However, business debt and credit cards are considered more risky than home loans. Therefore, banks will raise their risk premium in these two areas; and not lower those lending rates, as much as the RBA’s official rate cuts.
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There are a couple of questions on the minds of Commercial Property Investors at the moment.
And they go something like this.
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