Through the combined monetary and fiscal moves by the Reserve Bank of Australia [RBA] and the government, Australia has avoided a technical recession. Early in 2009, the government launched a 40 billion Euro stimulus package which it funded in part through past budget surpluses. The RBA swiftly reduced interest rates to historical lows of 3%. According to the Australian Bureau of Statistics [ABS], GDP continued to grow in Q4 of 2009, by 0.9% over the previous quarter and 2.7% year-on-year, driven mainly by an increase in public [10.2%] and private investment [3.5%]. Unemployment reached a peak of 5.7% in May 2009 and was expected to reach 6.5% by the end of the year, after the original forecast of around 8%. However, according to the ABS, by year end the rate had fallen to 5.5% - and fell a further 0.2% in January 2010. As a result of this good economic performance, the RBA was the first central bank in the OECD to raise rates: with three consecutive rises by the end of 2009. Early in 2010, the Governor of the Reserve Bank characterised the new challenge as managing an economic expansion and said that rates still have a little distance to go yet before returning to a more normal setting. The first of a new wave of expected rate raises was introduced on 2nd March, with a further 0.25% added to the Cash Rate which now stands at 4%.
Because of pressure on their working capital, many firms had concentrated on reducing inventory levels in 2009. This de-stocking was completed in Q3 of 2009 and, in Q4, they began to rebuild inventory levels to a more normal level. However, banks are choosing to lend against the housing market, while business lending continues to see dramatic reductions. The reason for this? The urban structure in Australia, with its mega coastal cities and net positive immigration policies, provides a naturally increasing source of demand for housing. Australian Banks who came through the worst of the downturn relatively unscathed and with their capital intact now see the housing market as a safer place to lend funds, in view of the security that real estate offers and the increasing demand for that real estate.
Without access to short term bank funding, many business are being forced to pull one of the other two main levers of working capital: payables and receivables. Of these, receivables is the easiest to control, and the nationwide reduction in days sales outstanding [DSO] that Crédito y Caución saw from Q1 to Q3 of 2009 has now effectively reversed in the early months of 2010. This trend is expected to continue into the second quarter.
The outlook is still positive, but some problems remain
All the signs are that the Australian economy will continue to improve throughout 2010, with GDP forecast to grow 3.25%. However, this positive development has yet to be fully reflected in the insolvency statistics, which are still at record levels.
Almost all sectors in Australia have been affected; especially construction. Agriculture has fared better than most other sectors, despite suffering on two fronts - credit availability and drought. The retail sector has benefited from the government stimulus package, while sales in the chemicals sector have remained relatively robust. Overall, corporate insolvencies are currently on a downward slope. However, Crédito y Caución expects them to remain high in 2010, with the possibility of another upswing as businesses start to restock and grow but, without access to bank lending, have to fund this by exhausting their working capital.
Consumer durables are particularly susceptible to any downturn in economic activity. In Australia, however, the industry has been particularly resilient to the effects of the economic crisis. The pain was tempered by two government stimulus packages, firstly in December 2008 and again in early 2009, which, along with low interest rates, supported the sector at the height of the crisis. The stimulus is estimated to have added about 1% to GDP growth in Q2 of 2009, with much of this flowing through to retail/consumer durables sales.
Average payment terms have lengthened since the beginning of 2008 - from 52.3 days and peaking at 58 days in February 2009. They fell back to 51.7 days in August 2009, the lowest level in two years, and then steadily rose again to 54.4 days in November 2009. This is in line with the Australian industry average.
Even without the 2008/9 stimulus package, which injected many millions of dollars of disposable cash into the hands of the average consumer, the Crédito y Caucións outlook for the coming months is favourable, as consumer confidence is improving, driven by a recovery in labour demand, increased housing churn - particularly from the investor and trade-up market - and improvements in the stock market. All this creates a feeling of wealth. While rising interest could be a key risk for this sector, it is forecast that retail revenue growth will recover to 1.7% in 2010.
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