Over the Christmas break, I was fortunate enough to spend some time travelling, skiing and seeing how other parts of the world are weathering these unique financial times. The great part about travel is that it affords you the opportunity of uninterrupted reading time, which is a luxury not often found in daily routine. Of all the reports that I read, Goldman Sachs had one of the more bearish assessments of the Australian economy.
Next year the investment bank is forecasting economic growth in Australia at just 2%, as it believes, “balancing the transition of economic growth from the non-mining sector then 2016 will likely be worse”. Here’s Goldman:
“Our estimate at this time last year that mining investment will subtract 150ppts from economic growth in 2015 is unchanged; however, in 2016 it represent an even greater drag of 200ppts from economic growth. As the housing investment contribution of 40ppts in 2015 transitions into a flat contribution in 2016 the growth driver will rest increasingly on exports. Net exports are forecast to contribute an additional 80ppts to growth (a record 200ppt contribution in total in 2016) with government demand and private consumption to contribute an additional 30ppts collectively. Nevertheless, 2016 is still presenting as a slower year for economic growth relative to 2015.”
It also sees an “unwinding” of the recent employment gains, forecasting the unemployment rate to rise to 6.25%, and inflation remaining around 2%. It sees a recovery of sorts in 2017 and 2018, with GDP growth returning to around 3%.
On interest rates, Goldman sees the RBA on hold next year at 2.0% but “ascribe[s] a 45% probability to interest rate cuts in the first half of 2016”. They add:
“We expect that the RBA will leave interest rates on hold in 2016 and 2017 before commencing a modest interest rate hiking cycle in early 2018. The risk to the view is that anemic domestic demand growth is sufficient to see inflation undershoot expectations and the unemployment rate to reverse recent gains. Under that scenario the RBA would likely ease interest rates further in 1H16 and interest rate rises would likely occur at an even later date. The path of the A$ will prove influential in shaping expectations for interest rates.”
“In short,” Goldman concludes, “we continue to be well below consensus for economic growth in 2016 and anticipate low interest rates for longer as the familiar threats of the commodity price income shock, rapidly falling business investment and the challenge of addressing Australia’s deteriorating fiscal position weigh on economic growth.”
Not a pretty scenario.
But reading this makes me think – given that we are facing yet another turbulent year in Australian economics, what is it that small businesses will need to be able to adequately navigate this year to come out stronger on the other side? How do we help our clients develop resilience, and at the same time have the confidence to keep driving their businesses forward when the share market and businesses in general are remaining flat?
I believe that it comes back to making sure that we deliver our Mission to each and every one of our clients, and that is to “help small businesses by providing them with valuable, timely & clear picture of financial performance” so they are equipped with the right information to make the right strategic decisions for their business. Here’s to making 2016 the best year yet for your business, despite what may be happening in the broader markets around us!
About the author:
Simon Allsop is the founder of My Accounts. His vision for the business was simple: take the robust operating procedures of large companies and use them to help smaller organisations get a clear picture of their financial performance. Using accountants as bookkeepers, supervised by qualified and experienced managers with the latest reporting formats he has rapidly grown the company to where it is today.