A rising tide

As forecast in columns earlier this year, the market has locked itself down to a square root symbol rather than a W shape as the IMF begins to forecast a strong recovery in the world economy.

While investors have been sitting on their cash and households have been moving towards savings, smart companies have been preparing for a post election expansion at home and increasingly in overseas markets.

It is too early to be confident that the tide has turned as CMC market analyst David Taylor says: “There was a real change in sentiment offshore, which lead through to our markets, but you just need one bit of bad news and it gets all unravelled again. Think of the markets as a toddler, when they’re standing up they look strong but push them a little bit and they tumble down.”

Oliver Blanchard, the IMF Chief Economist says, “How Europe deals with fiscal and financial problems, how advanced economies proceed with fiscal consolidation and how emerging market countries rebalance their economies, will determine outcomes”. The Fund has upgraded its world growth forecast .4 points to 4.6% and expects Australia to continue its growth path to achieve a further 3.5% growth next year.

The continued low levels of unemployment represent a platform for small business expansion consequent upon the creation of 45,000 more jobs in the last month and 350,000 over the past year. There will be significant pressure on Glenn Stevens to raise interest rates just as Julia announces the date of the next election if unemployment rates fall below 5% and annual inflation heads over the fence at 3%+.

The decision of the RBA Board to hold interest rates steady this month should not be taken as a sign that it has lost its independence or has any fear that a change in government would make any real difference to voter anticipation of better times ahead. As expected, consumers are increasingly conscious of pressures on their personal finances, concerned about talk of carbon taxes and other “great big new taxes” and less confident about buying major household appliances.

Consumer Confidence was down 1.1pts to 122.5 according to the weekly Roy Morgan Consumer Confidence Rating conducted on the weekends of June 26/27 and July 3/4, 2010. Weekly Consumer Confidence is 9.0pts higher than a year ago, July 4/5, 2009 (113.5). In terms of Australians’ personal finances, now 28% (down 2%) that say their family is ‘better off financially’ than a year ago compared to 30% (up 2%) say their family is ‘worse off financially’ than a year ago. Nevertheless Consumer Confidence remains at higher than average levels (122.5) and the RBA’s decision this week to leave interest rates unchanged at 4.5% for the second straight month should help support Consumer Confidence over the coming few weeks.

Gary Morgan says: “Slight falls in those saying now is a ‘good time to buy’ major household items (56%, down 2%) and Australians saying their family is ‘better off financially’ than at this time last year (28%, down 2%) are the factors driving this week’s fall, although despite the fall Consumer Confidence remains 9.0pts above the same weekend a year ago — July 4/5, 2009 (113.5).

As we go into the election turbulence, smart companies will use the time to do a stocktake, train their sales teams and prepare for improved customer relationship management opportunities in the next calendar year. SME job creation is however likely to provide a rising tide that should generate a climate for growth that is only threatened by rising energy costs and continued uncertainty in European markets.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
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