Australia has gone into recession for the first time in 28 years. What effect could it have on you?
Australia has had a very good run when it comes to continued economic growth. Twenty-eight years without a recession is a record achievement, with the previous one in 1991. So what is a recession, and what does it mean for you?
What is it?
The Reserve Bank of Australia has two different definitions of what a recession is. The first is a more general one:
A recession is characterized by sustained weak or negative economic growth. It also involves a significant rise in the unemployment rate. Many other indicators of economic activity are also weak during a recession. For instance, levels of household spending and investment by businesses are usually low.
A more technical definition is when there have been two consecutive quarters of negative growth.
The 7% decline in growth in the June quarter is Australia’s largest recorded drop since 1959. This highlights the significant impact of the current economic conditions on the country.
Financial definitions and figures are important. However, understanding the impact on daily lives is crucial. A recession means that people lose jobs and pay drops – and that really hurts.
A recession often leads to rising unemployment and a long period for job seekers to re-enter the workforce. Many have lost their jobs during the current crisis. Others rely on government JobKeeper payments to keep their income going. This highlights the impact of economic conditions on employment.
A financial hit like this, and the hardship it creates, have a massive toll on people’s physical and mental health.
Losing a job and possibly a home can cause immense stress and hardship. It is important to support our family, friends, and colleagues who have recently become unemployed.
Pay rates slip
Another key feature of a recession is that salaries don’t go up. Currently, many people have reduced working hours or taken pay cuts. Getting a pay rise will become more difficult. This can make it harder to pay ongoing debts, such as a home loan, if one had planned for steady wage growth. The situation highlights the need for financial preparedness.
Is there any good news?
During this pandemic, people have been preparing for what may come. We’re not talking about hoarding toilet paper. People are paying off credit cards faster and increasing their mortgage payments.
It’s a recession like no other, and so things are changing in ways that are anything but typical. As lockdowns ease across the country, we are seeing some positive signs.
Firstly, people in industries impacted by shutdowns are returning to work. Canstar, a leading Australian economic research agency, reports that retail spending is growing at the fastest annual rate in 19 years. This suggests a positive trend in consumer spending. And house prices are rising in many regions.
What about the property market?
Melbourne has seen a decline in property prices. However, if one is in a region with low virus cases, the market is likely healthy. Some places are even experiencing record-high home prices. Not what you’d typically associate with a recession.
Less than a year ago, the pandemic’s impact was unpredictable. Now, we are in a recession and the path to recovery is uncertain. It is crucial to do a financial health check to manage finances and home loans. This is more important than ever.
Interest rates are at an historical low, and most believe they’ll stay there for some time. They could even drop further. This means there are home loan products and options out there that could better protect you for whatever happens next. Protecting your savings and minimising debt is essential. Finding a loan with built-in flexibility can help navigate the next few years. It may be exactly what you need.
As a mortgage broker, we can effectively help you manage your mortgage during this recession. Contact us to discuss your options for preparing for future events. Because the one thing we can be sure of is that this recession will end. They always do.