Happy New Year. While we are busy tidying up from the financial year that was, it is interesting to note some of the popular commentary that is surrounding the start of the new financial year and the various economic predictions coming to hand.
Harry Dent, the US-based economist who is well-known for predicting the major economic and stock market events for the past 20 years, says:
"Sell financial assets, speculative real estate, and parts of your business you don’t dominate now. Do it ahead of the next crash which could start as soon as this summer and accelerate in 2016.
In your business, focus on your strongest sectors. Now’s the time to get lean and mean. Doing this should darn-near guarantee you’ll survive and out-live your competitors. And you’ll make money doing it, too — in the short term, but even more so over the long term."
Robert Gottliebsen, one of Australia’s most experienced business commentators, says in the Eureka Report:
"This interest rate expectation change is going to disappoint a lot of investment strategies that have been based on the market consensus that the US interest rates would rise markedly. The problem with higher interest rates in the US is there is no sign of significant inflation breaking out and while considerable employment has been generated as part of the economic improvement, a great many of the jobs are at the lower paid end of the spectrum.
What is more dangerous to Australia is, of course, what is happening in Shanghai. The Chinese economy is still growing but the rate is slowing considerably; despite this the Chinese share market has skyrocketed this year because there has been a frenzy of lending to channel the Chinese love of gambling into margin share trading."
A positive note from the Australian Financial Review:
"So while growth remains sub-par, the risk of a recession remains relatively low and growth should start to move back to around trend at some point next year. In other words there is no reason to get overly gloomy on Australia."
Peter Warnes, Head of Equities Research at Morningstar says:
"I don’t believe there is an elevated risk of the equity markets being derailed or bushwacked by sharp and unpredicted moves in US interest rates by a Janet Yellen led FOMC. This is supportive of equities and should not light a fire under the US$, so helping soften the impact of a stronger currency on earnings of the strongly represented multi-nationals in the S&P 500."
Closer to home and probably of greatest relevance to owners of Queensland SMEs, health practices and management rights businesses, are the predictions that we are making as a firm based on our direct insights and understanding of the local market:
"Softening of residential property values and conservative consumer spending will affect growth. The stock market will continue to experience volatility and mining investment will continue to slow as projects complete. Australia will remain affected by China’s slowdown.
With markets in volatility and interest rates low, what are consumers to do other than deleverage? Yes, areas of consumer spending are increasing – in the "experience" areas – the more traditional sectors are slowing.
The March 2015 quarter GDP figures slowed from December – health; education and food were down, hotels; cafes and household goods were strong.
Weak wages growth will be around for the immediate future and this impacts upon the ability of the economy to rise from its slumber. The trade off will be low inflation and lower interest rates for the foreseeable future.
Businesses will need the government (at all levels) to do some heavy lifting if we are to see some robust growth numbers.
Technology is causing disruption in many sectors / industries of the economy which is impacting on revenue growth and margin stability. Businesses need to harness the technology available to reach new customers and spread their message, whilst using new methods and processes to reduce production cost - whether that is manufacturing or service orientated.
The next twelve months will be a period of economic contradiction as the economy continues its move from mining to non-mining, as some industries enjoy lower costs and access to people, while other areas suffer further decline in revenue and profits.
The business who can get a customer to spend either via a required product, great customer service or real brand awareness will prosper.
Those businesses competing solely on price and the old adage of "we have always done it this way" will continue to suffer and decline," Ian Walker.
For more information on achieving business success in the coming financial year, please contact me on 07 3002 2699.
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