When the music stops…

There can be little doubt that the Federal Government’s stimulus measures have been highly successful in protecting the Australian economy from the worst of the global recession.

Two measures stand out as being particularly successful: the special investment tax allowances for business and the enlarged first home owners’ grants.

New car sales jumped from 75,449 in May to 106,541, as small and large companies rushed to take advantage of the allowances (50% for small businesses and 30% for large businesses that spent over $10,000 on an asset). After a horror year, car dealers couldn’t be happier.

Home owners are still feeling pretty chipper too. Data from Residex showed house prices rose 1.5% across the nation in 2008-09, a brilliant result considering the massive falls in house prices in the United States and Britain. In Victoria, more than 5,000 first home buyers entered the market in June alone.

These measures helped us dodge a big bullet, but their stimulatory effects will not last forever.

Car dealers are predicting a sales slump in the coming months. As discussed yesterday, industry experts are expecting the retail sector will be hit hard as the effects of the Government’s cash handouts fade, and unemployment starts to rise. And property experts are also wondering how the market will cope when the first home buyer buzz runs out in the back half of this year.

The great hope, of course, is that the economic recovery will start later in the year, lifting these sectors out of any post-stimulus slump.

But there are no guarantees. If you are in these sectors, it might be best to prepare for a rocky 12 months, regardless of any recovery.