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- Economic & market outlook - quarter ending 30 September 2009
Economic & market outlook - quarter ending 30 September 2009
- By Martin Fowler
- Published 21/10/2009
- Investment Insights
- Unrated
Overview - Australian economy
It is hard to believe that only 12 months ago the world was literally on the cusp of what literally could have been the second Great Depression. In recent months, business and consumer confidence has improved beyond measure, the sharemarket has roared back to life and a ‘business as usual’ mentality has returned. In this update we thought it might be appropriate to remove ourselves from the emotion and consider whether the economic fundamentals have really improved as dramatically as markets would suggest.
A cursory look at the economic data would indeed suggest that the fundamentals seem much improved. Firstly, the rebound in business and consumer confidence is nothing short of extraordinary. Remember, these tend to be leading indicators of future growth. The Business Confidence Index is at the highest level since 2003 (after the end of the Iraq war) while the consumer confidence reading is the highest since July 2007 (pre-financial crisis).
It is hard to believe that only 12 months ago the world was literally on the cusp of what literally could have been the second Great Depression. In recent months, business and consumer confidence has improved beyond measure, the sharemarket has roared back to life and a ‘business as usual’ mentality has returned. In this update we thought it might be appropriate to remove ourselves from the emotion and consider whether the economic fundamentals have really improved as dramatically as markets would suggest.
A cursory look at the economic data would indeed suggest that the fundamentals seem much improved. Firstly, the rebound in business and consumer confidence is nothing short of extraordinary. Remember, these tend to be leading indicators of future growth. The Business Confidence Index is at the highest level since 2003 (after the end of the Iraq war) while the consumer confidence reading is the highest since July 2007 (pre-financial crisis).
In addition, building approvals have improved markedly and private new capital expenditure, an indicator that businesses remain confident about future orders, was stronger than expected, (up by 3.3% in the June quarter).
In addition, job advertisements have finally begun to rise which should stem the rise in unemployment and personal credit has also shown signs of improvement.
Nevertheless there are still some indicators that remain lucklustre. Business credit remains weak, as do car sales. Both indicators though are likely to improve in coming months should sentiment continue to remain robust.