Published on August 21, 2014
ala ala-Valverde The Australian investment climate over the last 7 Years The Australian investment climate is determined by the economic and financial conditions. These conditions include national security, unemployment rates, political stability, taxes, inflation, interest rates, poverty, crime and government regulations. Australia has very active international trading with importing and exporting many goods and services and therefore our investment climate relies heavily on external factors. The investment climate is constantly changing and generally goes in cycles. Presently, returns on Australian shares are falling, both dividends and share growth, as we have been experiencing a low growth/low inflation period. Over the past 20 years return on Australian shares are an average of 8.9%. The housing market has been experiencing strong growth, particularly in capital cities such as Sydney. This trend is expected to continue around Australia. Whilst the Australian economy appears solid with relatively low unemployment, clearly regulated markets and a good trade balance, the investment climate is volatile mostly due to international factors. In general, returns on shares and property may slow down in the next ten years, as low inflation and interest rates are predicted to remain at least in the medium term. Overall, economists are optimistic about the Australian economy, especially compared to overseas. Inflation is the rate at which the general level of prices for goods and services is rising and falling. Central banks normally control severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum. Inflation rates also vary from year to year and whilst we are currently going through a low inflation period historically inflation rates have been significantly higher. The graph to the right shows the Australian Inflation rate from 2008 to 2014. The trend of rising and falling inflation between 1% and 5% over every two years is apparent in this graph. The inflation rate in Australia was recorded at 3% in the second quarter of 2014. Inflation rate in Australia has averaged 5.23% from 2000 to 2014. The unemployment rates constantly fluctuate and currently it is 6.1%. In 2009, following the Global Financial Crisis (GFC) the unemployment rates jumped from around 5% to almost 9% as businesses suffered the effects of credit restrictions. The graph to the left shows the unemployment rate in Australia from 2002 to 2014. It shows the dramatic increase in unemployment over the GFC starting at 5% and jumping to almost 9.5%. From 2009, however, there has been a steady drop of unemployment rates to the current level of around 6%. It averaged 6.92% in Australia from 2000 to 2014. The property market has recorded positive growth in the last few years. Since 2009 the Australian housing market recorded its best year in 2013. From the graph on the right which shows the Australia Housing Price Index from 2007 to 2014, the rise and fall of housing prices can be seen. House prices in Australia have increased 1.8% over the second half of 2014. Between 2007 and 2014 the highest recorded half yearly price increase on the index was 6.1% and the most significant drop was -2.6%. One of the most significant global events of the last ten years was the Global Financial Crisis (GFC), which started in September 2008 with the default of Lehman Brothers, one of the biggest investment banks in the world. The trigger of the crisis was the level of unsecured lending over residential property in the USA. After significant number of defaults banks have lost their security, had to be rescued by governments. The first signs of distress in financial markets emerged around the middle of 2007 and continued to spiral out of control until 2009. There were shocks in global housing markets, especially in the USA where the lending crisis started, and there was an increase in risk when investing in housing, health care, shares, banking and resources. After the major drop in all areas of investing, the Global Financial Crisis has seen the largest and sharpest drop in global economic activity of the modern era. In 2009, most major developed economies found themselves in a deep recession. This downturn in activity was causing unemployment rates to rise dramatically, leaving many people without employment and the financial aid they needed. This in turn resulted in reduced investment and worsening of the investment climate. Australia did not experience a significant drop in economic outputs, largely as a result of the productivity of the mining sector which relied on the fast growing Chinese market.