Australia In A Recession, But We Fool Ourselves

What constitutes as a recession? A technical recession is typically measured by two consecutive quarters of negative GDP growth. So as long as its positive, all is fine.

Yeah, maybe in fairy land but not in reality. Many Australians are feeling the pinch in their wallets. Rising inflation makes everything more expensive.

What you see in the media is a narrative they want you to believe. Because whats the point of causing national panic. Which is also why we should always take what people say with a grain of salt. That’s me included.

It is much easier to believe what you have been told, because who can be bothered fact checking. Worst yet, who can be bothered searching up information themselves, and reading hundreds of words.

Australia Is In A Recession

Surprising as it may be, Australia currently finds itself in the throes of a recession, notwithstanding what the latest GDP figures may suggest. The recent quarterly GDP result doesn’t warrant celebration, and this lackluster trend has persisted over the last three quarters.

Quarter	Growth
December 22	0.7%
March 23	0.4%
June 23	0.4%

It’s crucial to grasp that GDP numbers are derived from a national average. A calculation influenced by migration and sustained government expenditure, maintaining a facade of positivity.

Yet, a more discerning perspective emerges when we consider GDP on a per capita basis. This recalibration accounts for individual spending patterns. Which provides a more accurate assessment, especially given the impact of migration on boosting GDP.

If we were to gauge Australia’s economic health per capita, the last three quarters would manifest as negative. Hinting at a recession that we are not officially acknowledging yet.

Despite the statistical narrative, Australians seem to be tangibly experiencing the pinch of economic downturn. In contrast to countries like the United States, where mortgages are fixed for 30 years, the majority of Australian property loans operate on variable interest rates.

This distinction is noteworthy because fluctuations in interest rates disproportionately affect Australian consumers. In the United States, the impact is more pronounced on corporate debt and the bond markets.

In Australia, the tangible consequence is evident in the wallets of consumers, particularly with the burden of higher mortgage repayments. Recent surveys underscore this, revealing that half of Australian mortgage holders are grappling with financial stress.

Should interest rates persist at elevated levels, the risk of exacerbating this issue looms large on the horizon.

Global Economy Signals A Recession

Amidst the bullish surge of the ASX and S&P500, we should acknowledge that the global economy is not faring well. This serves as areminder that the movements of the stock market and the overall economy are not always synchronized.

The stock market, as an indicator, doesn’t necessarily mirror the true state of the economy. Turning our attention to Australia, we’ve been fortunate to evade a prolonged recession for three decades. This is primarily attributable to our robust trading ties with China in the early 2000s.

During that period, China’s burgeoning economy had a voracious appetite for our natural resources. Allowing Australia to weather the storm while the rest of the world grappled with recession during the financial crisis.

However, the current landscape is marked by a significant shift as China contends with an economy slipping into a deflationary phase. A circumstance more challenging than inflation.

Shifting our gaze to the United States, an ostensibly inconspicuous event occurred in March 2023. Namely, the collapse of Silicon Valley Bank. While the magnitude of the 16th largest American bank’s fall, valued at over $200 billion, might suggest far-reaching economic consequences, it seemingly went unnoticed.

This apparent discrepancy is attributed to the swift response of the U.S. Federal Reserve through the establishment of the ‘Bank Term Funding Program’ (BTFP). Unveiled in March 2023 following the failures of SVB and Signature Bank, the BTFP operates as a discreet form of money creation, transpiring behind closed doors. A departure from the more conspicuous quantitative easing witnessed during the pandemic.

Thus, even in an inflationary environment, the subtle currency generation orchestrated by the BTFP holds repercussions, unbeknownst to many.

Australians In Hardship

Despite the recent gain in the stock market, many Australian families find themselves grappling to put food on the table.

The latest insights from the NAB Consumer Insights Survey reveal a notable 43% increase in Australian hardship, a consequence of escalating interest rates exerting pressure on household budgets.

Historically, Western developed nations have not ranked high in natural savings tendencies, boasting the lowest saving rates when compared to other countries.

The lack of sufficient savings remains a prevailing cause of financial stress for individuals. This issue is particularly pronounced in Australia, where the average long-term savings rate hovers around 3-4%, a stark contrast to other nations exceeding 10-20%. Singapore, for instance, boasts a gross savings rate of 49.2% as of December 2022.

Given Australia’s reliance on imports for a majority of goods, our consumer-driven culture entails substantial spending on products, often at higher prices due to our preference for finished products.

Surprisingly, despite our already low savings rate, recent data indicates a further decline in the national average, now resting at a meager 1.1%. This signifies that, on average, Australians are saving a mere 1.1 cent for every dollar earned.

While 1.1% represents the average, there are those saving more, possibly 7%, and a significant portion operating at a negative rate. This implies that a considerable number of Australians are either depleting their savings or accumulating credit card debt to make ends meet.

In light of these financial challenges, it’s not surprising that 1 in 3 Australians views money as a significant source of stress, and 26% express the struggle to meet their financial obligations.

Key Takeaways

• Data presented by the media does not always truly reflect the reality. There are a set of data that always looks more attractive and then there are those that tell a clearer picture. Often the right data does not always present a positive outlook.
• The global economy encounters a nuanced challenge, necessitating delicate navigation, with each region grappling with its distinctive set of issues.
• Australians are notably accustomed to maintaining a very low savings rate on average, a circumstance that can pose challenges, particularly during times of economic downturn.

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