When the stimulus stops how will the real economy look?

It is nearly a year since the world was turned on its head and everything came to a grinding halt here in Australia.  Global emissions slowed along with every aspect of the economy and, of course, our lives in general. Governments around the world were scrambling to work out a virus strategy and an economic strategy to prevent our health and financial systems from collapsing.

 

Relative to the rest of the world Australia has coped very well through all aspects of the pandemic. Global financial markets bounced back relatively quickly after their initial fall, buoyed by the financial support that many governments provided. In Australia, at least much of this financial support will end on 31 March 2021.  So the question for many of us is what will happen when this ends?

 

Contrary to what mainstream media suggest we don’t envisage a giant fall off the cliff occurring. Many businesses have indeed been saved by JobKeeper 1 and 2; and many have in fact been saving all of this money just in case something bad does occur given numerous businesses did not experience the impacts some industries did. For some, this has resulted in strong cash positions for their businesses. Granted there will be many small businesses in specific sectors that will face ongoing difficulties, such as Travel Agents, but on the whole, I see a buoyant Australia in April, through until at least the end of the year. Consumer spending is strong, and off the back of record low-interest rates, the property market remains fierce in most parts of Australia.  The flow-on effect is that small businesses are benefiting from this increased activity.

 

For some, the unknown will see them approach the year with caution, focusing on minimising risk and operational restraint to ensure the uncertainty of what is to come doesn’t derail their business. A conservative plan will be what gets some businesses through the coming years as they rebuild their confidence and position themselves with strong foundation should we see an event like this occur again. However, overall we expect to see continued small business investment and expansion to take advantage of the capital asset deductions and low-interest rates over the next six months.

 

Like many we do anticipate longer-term pain when Governments need to repay the debts that have been incurred via JobKeeper 1 and 2 and all other concessions, and if there is a need to increase rates to curb inflation.

 

Despite this, we are seeing a strong 12 months ahead within most sectors in Australia with a cautionary overlay to what lies beyond that time frame.