The recession might be over, but there’s no cause for celebration ...yet.

The recession might be over, but there’s no cause for celebration ...yet.

Treasurer Josh Frydenberg grabbed a few media headlines this week when he declared that Australia ‘is out of recession’ based on GDP growth figures of 3.3%.

… But don’t pop the cork on the champers just yet, writes Jim Vass.

Is Australia out of recession?

It’s the question on every small business owner’s lips: Is Australia out of recession?

Theoretically, yes. And that’s great news. But times are still tough and will be for a while yet.  Unemployment remains high and business confidence (the willingness to invest in operations, products, services and people) is still low.

We all knew that shutting down the country during the pandemic would create a recession.

Many factors need to be considered before we can declare ‘recovery’

At the time the experts likened it to putting the economy into an ‘induced coma’  and the Federal Government made some wise decisions about how to support businesses and people through.

But, the truth is, that we didn’t really know where we’d end up. And we’re still not entirely sure.

Certainly, no one expected the second wave of the pandemic which pretty much decimated Victoria. The Southern state is still recovering, and without it, Australia is sort of running on five cylinders instead of six, if that makes sense.

What’s also been interesting to observe over the past several months is that while it was originally assumed that the whole country would suffer the ‘worst depression since the great depression etc etc etc’ some industries have remained pretty stable, others have grown exponentially.

This was unexpected.

So, to make sweeping predictions about the entire country right now, is in my view, a bit premature. It’s too early to call.

We must remember that as the support systems dry up then we could very well see a lot of businesses fail. Jobkeeper will end in March next year. It’s been a lifeline for many businesses.

Business, mortgage and personal loan ‘holidays’ are also expiring or about to expire. The lenders have been very accommodating, but time is now up.

Paul Burness of Worrells, recently wrote an interesting article citing sobering statistics from APRA, which show that 728,335 loans had been deferred totalling $228bn; that includes 204,752 SME business loans totalling $52bn. And, as he goes on to point out, despite payments being put on hold, interest continues to accrue.

Unemployment is also high – more than one million Aussies are out of work, and that number is still expected to climb. Christmas spending is yet to be tallied but will provide a good indicator of how consumers and households are feeling about the economy.

With State and Territory borders opening up, domestic tourism should get a much-needed boost, particularly over the long summer holidays, but we also rely heavily on international tourists, and they won’t be here for some time.

Let’s not forget that investment markets globally have been in flux all year in response to the pandemic and the US elections, as well as the news of a Covid-19 vaccine. They have not completely settled. Immigration to Australia remains at a standstill – this has a significant impact on the real estate sector in particular. What happens globally (considering we’re all inextricably linked via international trade) will also affect how we fare overall.

There are a significant number of factors to weigh into the equation. GDP is a good indicator of general economic health, but if we’re comparing the last several months to an ‘induced coma’ then there are other vital signs that definitely need to be checked before we can really say that Australia is back on the road to recovery, with a positive prognosis.

For more details, view the webinar we recently hosted with Emmanual Calligaris, chair of the CARE Investment Group

Australia is stable, but beware: 'caution' ahead

That said, yes, Australia is certainly on a more solid footing that most other countries. And that’s largely in part to the Federal and State Governments for making swift and astute decisions, even when times were erratic and outcomes were precarious.

It’s also a testament to the Australian people who diligently followed the health rules and to all of the businesses which adapted quickly, and those who sought to innovate in the face of disruption.

It’s definitely going to be worth celebrating the end of 2020 – a year we won’t forget quickly, but it’s far too soon to be crowing about positive economic recovery.

The best thing that business owners can do right now, is to continue to assess (and in some cases micro-manage) where they are at, with a firm focus on finances.

And of course, take a much-needed end-of-year break.

There are a number of ways we can help, so if you need professional taxation, accounting, financial planning, Virtual CFO services or business mentoring, please contact us.


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