As almost a year and a half post the initial shock of COVID-19, Australia’s economy has had to face and overcome many challenges in that time. Without question. And we have seen unprecedented recoveries in real asset prices. Also, the economic data to support what may be now boom time. Here’s how:
Recession vs Boom
Before we dive into the unprecedented recovery of the Australian economy. And we must first understand the true economic definitions of what a recession vs. a boom is. As host and economist Andrew Baxter exclaims. A recession by definition is two continuous quarters. By falling economic growth. This is essentially a situation where for 6 months in sequence. The economy has produced a negative GDP figure.
A boom on the other hand is quite the exact opposite – This is a period where you have extreme. And out of the bands economic growth. As measured by economic output. Also, the real asset prices and consumer sentiment. Ultimately in the real world. As to which state the economy is in really comes down. To how consumers are feeling, their ‘sentiment’ if you will.
We’re Off to the Races
How would you define the economy right now? I think most would argue that we’re off to the races. With consumer confidence being at a seven year high. And consumer spending rising and a raging property market it’s a hard argument to rebut. Also, after arguably the biggest economic shock of all time last March. The Australian government. And in particular, Treasurer Josh Frydenberg. And did a great job at resuscitating the corpse lying on the operating table. Also, what was the economy at the time.
Essentially, host Andrew Baxter says that we have created. And the perfect storm for a swift economic recovery – record low interest rates. Which is the meaning there’s really zero cost of borrowing money. Also billions of fiscal stimuli putting more cash into consumers’ pockets. And with both the public and private sector (AKA – the banks). Also, working hand in glove together. The money flow was well managed and economic activity artificially boosted.
The Multiplier Effect
One of the most prominent economic theories to date. Is something known as the multiplier effect. This is essentially a question as to if the government were to provide $1 of stimulation to the economy. Also, how much does that stimulation grow? One of the best examples of using the multiplier effect occurred. And when the government decided to start. Also, which is allocating billions of dollars of stimulus. Especially, to our Aussie construction industry.
As with construction, more stimulus provided. The more jobs are creat. Afterward, there a purchase of new tools and vehicles. Also, demand for the supply of raw materials increases. And the list goes on. It’s hard to quantify the effect of every dollar spent as per the multiplier effect. However, what we do know is that the government has placed a large focus. On getting more bang for the buck. And when it comes to stimulating our economy. In what has been a relatively favourable budget across a range of sectors. And also, no doubt we are seeing the money provided. By the government making more money.
Consumers are Spending
Putting more money into the pockets of consumers is always going to lead to more spending. With the addition of job keeper. And the sustainment of job seekers throughout the COVID economy. Also, we saw many consumers actually earning more from the government than they were in their jobs. Notwithstanding, the inability for us to travel internationally means that the usual $60-$80 billion spent. Here each year is now being spent domestically. Hence, All of this cash that is usually spent on a holiday is now spent on a car. And a renovation or a new TV from Harvey Norman – leading to dramatic increases in business commerce. And a perfect storm again for the economy.
With this, the RBA announced that their estimate of consumers. The confidence was at a 7 year high. Notwithstanding we are sitting at basically. A situation of ‘full unemployment’ of 5.8% where anyone who wants a job, has one. Also given the prices of real assets like property. And shares are rallying to record levels. The ‘wealth effect’ means more people. They are feeling more affluent in themselves. Also, when you feel richer (because technically you are). And you spend more. Also, what does all of this result in? Spending, spending. And more spending leading our economy into boom time.
The Stock Market at Record Highs
Money has to go somewhere and to talk about something much more specialised – here we are on the topic of the stock market. And its influence on the economy. In Addition, Given the challenge of entering the property market. And such inflated prices. And the banks offering zero incentive to keep money. Also, sitting in an account – the stock market has your next best bet.
Equity markets are now at all-time highs to which more. And more people are making great money. Then with low barriers to entry and the rise of online investing. And new stock market entrants are making a killing. Also, they are fuelling our economy in exactly the right way.
This poses a challenge, given we’re at record highs. In Addition, As to how to protect your capital if the market. And did reach its limit and begin to sell off. As well, Here, risk management is key. And is something that will allow you to sleep at night. Inv fact, to learn how, reach out to Australian Investment Education.
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