InvestingMarkets, Industries and TrendsProperty

Immigration: The key to growth?

Content provided by Msquared Capital

Written by Paul Miron, Managing Director, Msquared Capital

Australia has been blessed over its economic history, weaving and dodging through major financial crises relatively unscathed. It entered the COVID-19 pandemic, which has caused the most severe global economic shock since the Great Depression, from a position of extreme strength: the budget was in balance for the first time in 11 years, workforce participation at a record high and welfare dependency at its lowest in a generation.

Australia was bathing in the glory of the most prolonged uninterrupted GDP growth worldwide in 30 years.

Australians also have emerged post-COVID as the wealthiest people per capita globally. Australia’s economy is the most robust according to OECD as per below.

 

Learning from our past

In every significant economic challenge presented to Australia over the past 30 years, there seemed to be unexpected good fortune that allowed Australia to adapt and find new opportunities.

That was not always the case, as in the 90’s recession we experienced a period of stagflation, reflected by high inflation of 5.5%, negative GDP growth, official interest rates of 12%, and unemployment of 12%, with the manufacturing industry being decimated.

Data refer to Q1 2021 (instead of Q2 2021) for GDP in Russia and South Africa. Employment: share of the population aged 15-74 that is employed. *Source: OECD Economic Outlook Interim

At that time, Australia ranked extremely low within the OECD nations regarding income per capita. At the time, Singaporean Prime Minister Lee Kuan Yew berated Australia, warning Australians were on track to become “the poor white trash of Asia.”

Despite the dire circumstances, Australia has used this era to introduce successful economic reforms that have served well for many decades. These included compulsory superannuation, RBA policy of inflation targeting monetary policy, privatisation, creating political independence with our regulatory pillars, RBA, ACCC and APRA, consumer protection departments, and the productivity commission—paving the way for robust policies to ensure Australia emerges competitive in a new
era of globalisation.

Our economy adapted and prospered to new opportunities such as mining, tourism, and education. Fast forward to 2007-2008, whilst the world was haemorrhaging during the GFC, our stringent banking regulatory framework led to our four leading banks being amongst the top ten in the world at the time, cushioning the crisis and emerging even more robust post-GFC.

Present-day challenges

The emerging economic impacts of COVID have some similar traits to those of the ’90s.

Once the inflation genie escaped from the bottle, we now see the latest inflation figure of 2.1% year on end at their highest. Importantly, this has been the case over the past six years and indeed inflationary economic indicators are not abating. Vigorous debate is brewing among economists and academics whether inflation is truly transitionary due to lockdowns. Other words such as stagflation, hyperinflation, sporadic, core inflation, deflation, and asset inflation have been added recently to our vernacular.

The genuine concern is that despite the RBA governor’s assertions that interest rates will remain unchanged until 2023, it is unlikely that he will want to play chicken with the threat of inflation and so be unwilling to increase interest rates. By raising interest rates, nearly all assets will reverse their stellar fortunes, and deflate accordingly. The increased risk of an uncertain economic recovery and recessionary risks will continue to plague consumer confidence as a result.

Despite inflation being the main headline, there are other equally important economic challenges emerging for the Australian economy:

  • The post-COVID global trend emergence of the “Great Resignation”, lambasting recovering businesses and adding to wage inflation and reducing profits;
  • Geopolitical relationships with our most significant export partner, China, continue to sour as trade is now weaponized, with the emergence of a long-term cold trade war seeming more apparent;
  • Ongoing supply chain disruptions;
  • International energy supply shocks;
  • Climate change policies and the shift away from carbon. With coal being the single largest export item on our trade balance it will impact our trade accounts;
  • The tertiary sector industry has been devastated with our borders shut for two years and the inability to replenish new enrolments. It is a shame Universities splurged recklessly pre- COVID on mausoleum-like campuses while shredding 17,000 jobs in this sector due to lack of cash flow;
  • Unbeknown impacts of social and economic effects of COVID are still emerging, e.g., data in US and Europe showing a lower consumption trend post-COVID.

 

Continue reading Msquared Capital’s full article here

Content provided by:

Disclaimer: Msquared Capital Pty Ltd ACN 622 507 297, AFSL No. 520293 (Msquared) is the Trustee of Msquared Contributory Mortgage Income Fund.

The information contained on this website should be used as general information only. It does not take into account the particular circumstances, investment objectives and needs for investment of any investor, or purport to be comprehensive or constitute investment advice and should not be relied upon as such. You should consult a financial adviser to help you form your own opinion of the information, and on whether the information is suitable for your individual needs and aims as an investor. You should consult appropriate professional advisers on any legal, stamp duty, taxation and accounting implications of making an investment.

The information is believed to be accurate at the time of compilation and is provided by Msquared in good faith. Neither Msquared nor any other company in the Msquared Group, nor the directors and officers of Msquared make any representation or warranty as to the quality, accuracy, reliability, timeliness or completeness of material on this website. Except in so far as liability under any statute cannot be excluded, Msquared, its directors, employees and consultants do not accept any liability (whether arising in contract, tort, negligence or otherwise) for any error or omission in the material or for any loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of the information or any other person. The information on this website is subject to change, and the issuer is not responsible for providing updated information to any person. The information on this website is not intended to be and does not constitute a disclosure document as those terms are defined in the Corporations Act 2001 (Cth). It does not constitute an offer for the issue sale or purchase of any securities or any recommendation in relation to investing in any asset.

Investors should consider the Fund’s Constitution, Information Memorandum (IM) and relevant Loan Memorandum (disclosure documents) containing details of investment opportunities before making any decision to acquire, continue to hold or dispose of units in the Fund. You should particularly consider the Risks section of the Information Memorandum and relevant Loan Memorandum. Anyone wishing to invest in a Msquared Contributory Mortgage Income Fund will need to complete an Application Form. A copy of the IM and related Application Form may be obtained from our office via email request from [email protected]

Past performance is not indicative of future performance. No company in the Msquared Group guarantees the performance of any Msquared fund or the return of an investor’s capital or any specific rate of return. Investments in the Fund’s products are not bank deposits and are not government guaranteed. Total returns shown for Msquared Contributory Mortgage Income Fund have been calculated net of fees and any distribution forecasts are subject to risks outlined in the disclosure documents and distributions may vary in the future. All figures and amounts displayed in this email are in Australian dollars. All asset values are historical figures based on our most recent valuations.

The information found on this website may not be copied, reproduced, distributed or disseminated to any other person without the express prior approval of Msquared.