The Second Coming of the GFC?
Much has been made in the media about Australia surviving the global financial crisis (GFC) or Eurogeddon as some of the finance crowd labelled it. On the ground however, the headlines concealed the reality of a patchwork economy where some industries pushed ahead while others were flailing in a sea of weakening consumer confidence, heavy discounting, tight lending conditions, and billowing debt cycles.
Rumours are rife that we’re heading for a continued period of global economic turbulence and recession despite improvements in the European sovereign debt financing conditions. So, what does all of this mean for Australia?
Australia’s Gross Domestic Product (GDP) is expected to be higher than last year at 3.8% with much of the growth driven by the resources sector and an expectation that China and India will continue to consume our resources despite the high Australian dollar. Mining and mining related sectors account for around 20% of the economy and contribute more than two thirds of Australia’s GDP while the rest of the economy that is not benefitting from the resources boom contributes less than a third . While there are flow throughs to the rest of the economy, you can understand why it’s hard for some sectors to ‘feel the joy’ of Australia’s comparatively resilient growth rates when that growth is so concentrated.
In 2011, Australia added no new jobs for the year despite a decrease in the unemployment rate. Most economists expect unemployment figures to rise this year as employers – many of whom have been hoping conditions will improve - start shedding jobs. As job uncertainty increases, consumer confidence and spending is likely to dip further.
Add to this the fact that February is normally cash flow hell for business with Activity Statements and payments due and you have a very uncertain first quarter. Dunn & Bradstreet released a report in January showing that businesses are neglecting their bills with the number of severely delinquent payments rising by 28% over the Christmas period. The February BAS payments will only compound the problem.
The second international GFC may come but regardless of the mining boom, Australia is in for a turbulent time.
How do you know if your business is in strife?
Insolvency specialists will tell you that business failures don’t show for months if not years after an economic downturn as business owners struggle to hang on. A business can go broke for many reasons but one consistent factor is the owner’s fail to recognise the warning signs and take appropriate action.
Here are a few of the key indicators:
If you need assistance with planning, establishing reporting processes, identifying KPIs or just a second pair of eyes, call us today on 02 4365 0377