Business Finance Update Nov 23
Economics is a fascinating area, full of data, facts, statistics, and misrepresentations. When you review current economic data or read the news you might get the sense that the economy is going ok, that we are on the "narrow path" the RBA talked about so much, referring to the outcome from the pandemic that does not result in a recession. The narrow path is very narrow indeed. The new RBA Governor must feel like she is trying to land a Qantas Airbus on the Sydney Harbour Bridge, one wrong move and the wings come off. That one wrong move, some people might think was the RBA's decision to increase the cash rate by 0.25% to 4.35% last week. Personally, it was not a surprise to me, if you follow me on LinkedIn you would have seen I thought it was going up, and also said that it is prudent to believe that the cash rate will remain between 4% and 5% for all of next year. This is contradictory to many economists and banks who have pencilled in rate cuts for late 2024. This could happen for sure, especially if the US and/or Australia officially enter recession. But, it is more prudent to plan for the cash rate to remain where it is now or edge closer to 5%. The reason I say that is because it is better to forecast a higher cost of funds, higher interest rates, than to expect them to come down. That way if and when rates come down, it is a nice surprise and a positive impact to your budget. If they do not come down, you have planned for it, maybe even planned for them to go up a couple more times and budgeted that in to your household budget or business budget. One of the most painful impacts of interest rates going up is that is sucks money out of peoples pockets they might have otherwise saved or used for other things. By people not having that money to save or spend, especially spend, businesses do not sell them their goods or services, which reduces business income. Knock on effects of reduced consumer spending is happening across the economy, it is likely that over the usually busy Christmas shopping period we will see a reduced level of spending, especially compared to the last couple of years. Anyone remember that YOLO Christmas in 2022 just as rates started going up? Spending was high, and remains high for now. As the data reflects a reduced amount of spending this will give the RBA something it wants. To see that rate rises are having an impact and reducing spending. The RBA wants to see spending reduce as that slows down inflation. And they need all the data signals they can get their hands on to show that is happening, because other recent economic data suggest that inflation remains very hot, very entrenched and not slowing nearly as fast as it should to return it to their target band of 2% -3% in 2025. If they do not see that spending reduced over the Christmas period they might likely conclude that monetary policy is "too loose" and "further tightening is required". This is economists speak for saying "people are still spending too much we need to increase the cost of their mortgages and other things to slow it all down". Let's see what the data says, and how the RBA responds. In other news, there’s plenty of property, tax, business and economic news making headlines right now, including these four stories:
Commercial sales set to rebound
ATO "draws line in the sand"
Labour market loosening
Treasurer talks up economy
Read more below.
Cash Flow! Cash Flow! Cash Flow! Did you know that we specialise in cash flow and working capital solutions for business? If you are experiencing tight working capital we work with the major banks, non-major banks, non-bank lenders and more to find the right cash flow solution for your business. We have options that are unsecured, or use property or other business assets to get cash flow finance for your business. We will find the right solution for your business.
Transaction activity in the Australian commercial property market appears to be trending up, but sales activity in 2023 will almost certainly be well down on last year's results.
There were $29.2 billion of sales in the office, logistics & industrial and retail sectors during 2022, according to JLL, compared to just $11.8 billion for the first nine months of 2023.
Transaction volumes did increase between the second and third quarters, from $3.5 billion to $4.0 billion. And sales activity is expected to increase further this quarter. “The outlook for Q4 is a robust transaction environment that should see momentum build into 2024, as local and offshore investors re-enter the markets,” JLL’s Australasian head of capital markets, Luke Billiau, said. However, total sales in this calendar year are on track to be lower than last year. “The fall in transactions since the beginning of 2023 is indicative of the pricing discovery in the market as a result of rapidly changing funding costs and a low-leverage environment relative to other global markets that prolongs this period,” Mr Billiau said. Want to expand? Call me for a loan
The Australian Taxation Office (ATO) has revealed that it expects to disclose the debts of more than 9,000 businesses in October to credit reporting agencies. These would be businesses that were not only behind on their tax or superannuation obligations, but had also received an intent to disclose notice and then not paid their debt or entered into an appropriate payment arrangement within 28 days. Paying or engaging with the ATO is the only way to stop a business’s tax debt becoming visible in credit rating checks, according to assistant commissioner Jillian Kitto. “Anyone with a debt is encouraged to reach out to us as soon as possible. We give businesses ample opportunity to re-engage with us. However, those who show continued and ongoing disregard for their tax and super obligations will have their debts disclosed,” he said. “There is over $5 billion owed by businesses who currently meet the criteria for disclosure. We must draw a line in the sand to protect the Australian community and other creditors, and to ensure a level playing field for businesses who do the right thing.”
Job vacancies have now fallen for five consecutive quarters, based on the latest data from the Australian Bureau of Statistics. After vacancies peaked at a record-high 476,000 in May 2022, they fell quarter after quarter to 390,400 in August 2023. Back in May 2022, there were also 548,100 unemployed people, or 1.15 for every 1 job vacancy. As of August 2023, there were 539,700 unemployed workers, or 1.38 for every 1 job vacancy.
So while the job market is still tight, the average employer should now be finding it slightly easier to retain workers and fill job openings. The labour market is likely to keep loosening, according to forecasts from the OECD, a leading global intergovernmental organisation that focuses on economic development. “Real GDP is projected to grow [from 2.7% in 2022] to 1.8% in 2023 and 1.4% in 2024. Tightening financial conditions and a weaker outlook for real incomes will weigh on growth. Labour market pressures will ease, with the unemployment rate rising to 4.6% by the end of 2024.”
International Monetary Fund (IMF) forecasts suggest Australia will have the fourth-strongest budget balance as a share of GDP among G20 countries in 2023. Australia’s general government budget balance – which combines the fiscal positions of all federal, state and territory governments – is expected to be -1.4% for this calendar year. That compares to an average of -6.1% for the advanced economies within the G20 group. Australia is also expected to outperform America (-8.2%), Japan (-5.6%) and the UK (-4.5%), which will also run deficits, although underperform Singapore (3.2%), Ireland (1.7%) and Switzerland (0.1%), which will run surpluses. “The IMF recommends governments rebuild their fiscal positions to withstand future economic shocks and that’s exactly what the Albanese government is doing,” Treasurer Jim Chalmers said. “The Albanese government remains focused on dealing with the immediate challenges Australians are facing, while at the same time building a stronger, more productive, and more resilient budget and economy.”