Most economists see growth for the Australian economy in 2014, but not as fast as what we are traditionally used to. Callam Pickering of Business Spectator is one of those economists. In a piece for Business Spectator, Mr Pickering opined what he termed “below trend growth” due to declining participation rate and difficulty keeping the budget in surplus. Consequently, Mr Pickering believes that a slower version of trend growth will soon become the new standard of trend growth.
The National Outlook
The mining boom has been the main driver of not only the WA economy for most of the last ten years, but the Australian economy as well. Twice in that period, commodity price booms have boosted the economy. However, the mining industry started streamlining operations and shedding jobs in 2013, slowing the economy’s growth.
The November figure for unemployment was 5.8% compared to 5.4% in December 2012, with the consensus expecting that figure to rise to a level of 6.25% for 2014. However, when one takes the declining participation rate into consideration, the net effect on the economy is like that of an unemployment rate over 7%.
The declining participation rate is a result of an ageing population and many unemployed deciding to remove themselves from the workforce. According to Mr Pickering, job losses and a slow rate of job creation will contribute to an uncertain job market, causing many Australians to curtail their spending until they see the job market improve. The net effect is that household spending will probably rise between 2.25% and 2.5% during the coming year.
This could have a mitigating effect on housing market growth, slowing it to rates roughly equivalent to household spending for 2014. Investors have been driving the Sydney market and exerting a strong influence in Perth and Melbourne, but that is predicted to slow unless the First Home Owner Grant helps more first home buyers enter the market.
Mining investment is the big “wild card” in the economy. As the resource industry has tightened its collective belt, investment has stalled. While there are plenty of new projects in the “pipeline” for 2014, the future is uncertain and many economists see the threat of a loss of mining jobs on the horizon for 2015 or 2016.
Government spending is helping out some, as the Government is projected to spend as much as $20 billion more in 2013-2014 than in 2012-2013. However, with the Coalition aiming to cut expenditures, the results may mimic those of “austerity programs” in Europe, which have failed miserably.
The last factor is the falling Australian dollar, expected to level out between .80 and .86 USD. While this sounds bad, it is actually a huge positive because it makes our exports more desirable, especially in the resource industry, whose streamlining has allowed them to increase output and efficiency, resulting in more exports going out. The RBA will also have a say in the economy with their future decisions regarding interest rates. Most economists are projecting rates to rise at the end of 2014.
What This Means to You
Obviously, WA is the state that has seen the most benefits from the mining industry’s effect on the economy. We believe that the mining industry will continue to have a positive effect here, even though we agree that the “boom” is gone. We also see the construction industry helping to grow the WA economy as infrastructure is still needed due to the mining industry’s continued presence.
We take comfort in the fact that we are, indeed, talking about growth. While it may not be steady enough for many, it is still growth. Periods of slow growth can hurt the short-term investor, but are good for the long-term investor. According to the Australian Housing Outlook Report completed by BIS Shrapnel for QBE LMI, Australia’s largest mortgage insurer, the Perth housing market is projected to grow by 8.0% for 2013-2014, around three times the projected growth for the economy as a whole.
This makes real estate a very good investment for 2013-14. Another factor is interest rates. With the RBA rate at a current record low, real estate is currently the most affordable we can expect to see in even a moderate growth curve.
The Right Investment
Since everybody has a different set of circumstances, we advise that you consult our financial planners and mortgage brokers to see if you can afford to enter the Perth real estate market as an investor. Once we determine an investment budget for you, we can help find the best home loan for you. Call (08) 9453 8888.