Over the past couple of months we in Australia have experienced some share market volatility in response to the widening debt issues in Europe and the US.  The announcement of Standard & Poor’s decision to reduce the US’s credit rating from AAA to AA+ in early August instigated several days of significant share market jitters with the market dropping sharply, then rapidly regaining losses in the subsequent days.  Most recently, the Australian sharemarket experienced its’ largest loss in one day in mid-September since the end of the Global Financial Crisis in 2008.  Whilst it’s clear that global financial uncertainty has a direct impact on consumer confidence here in Australia, just how are we expected to fare in the face of an international financial storm?

Why our financial advisors believe Australia is well placed to weather a global economic downturn

Despite the ongoing economic woes in the US and Europe (and specifically Greece), many economists believe that Australia is in a strong position to withstand any global economic turmoil due to a number of important factors:

  1. Australia has little exposure to European debt.  Australian banks have little direct exposure to stressed debt in Europe.  This means that any debt issues in Europe do not impact directly on Australia’s banking sector.
  2. Australia has strong exports to sturdy economies:  The majority of Australia’s exports are to two of the world’s fastest growing economies: China and India.  In fact, our exports to these nations are almost double those to the troubled economies of US and Europe.  China and India despite the current economic turmoil are showing no signs of slowed growth.  This is indicative that our strong economic growth will continue to the foreseeable future.
  3. Independence from the US & Europe.  For Australia, the US and Europe are far less important than China and the rest of Asia for sustained growth.  Gone are the days where our economy relied upon demand from the UK and the US.  Our economy is now well and truly tied to Asia with a high correlation between Australia’s growth and the growth in Asian economies.  This correlation continues to rise.  Commodity prices continue to be the key link between Australia and the rest of the world economies.
  4. Australia is in a position of good financial strength.  Australia is in pretty good financial shape at the moment with low levels of public debt and low rates of unemployment (around half that of the US).  While the US’s credit rating has been downgraded, we have kept our AAA rating.  Indeed in August, the International Monetary Fund (IMF)
    announced that “if global financial markets become severely disrupted or world growth falters, (Australia) is well positioned to respond”.

A matter of confidence in the Australian economy

There’s no doubt that all economies around the world will be impacted to some degree by the ongoing debt issues in the US and Europe.  The resolution of these debt issues overseas are going to be a very lengthy process with many economists predicting that it could take years for these economies to recover.  The main impact we’re likely to experience here in Australia throughout this recovery period are occasional bouts of sharp market volatility.  It may come to pass that similar share-market declines to what we saw in early August and September may be here to stay for some years yet.   Overall though, we can feel pretty secure in our ability to weather the storm.

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  1. $20 million boost for Aussie game makers « The blog of Natalie Goldstein - February 4, 2013

    [...] Financial Planner North Sydney Australia’s troubled video game development sector is set to receive a badly-needed shot in the arm within six months, with Federal Arts Minister Simon Crean announcing a $20 million fund to assist local studios. The new fund, officially titled the Australia Interactive Games Fund, will provide $20 million in direct financial assistance, and Mr Crean committed to having it up and running before the end of this financial year, a little over seven months away. As to how the funds will be divided up, what kind of things should be funded, and how decisions should be made, Mr Crean announced an upcoming consultation period that will allow the games industry itself to determine the exact nature of the fund. “Over the past couple of months we in Australia have experienced some share market volatility in response to the widening debt issues in Europe and the US.? The announcement of Standard & Poor?s decision to reduce the US?s credit rating from AAA to AA+ in early August instigated several days of significant share market jitters with the market dropping sharply, then rapidly regaining losses in the subsequent days.? The main impact we?re likely to experience here in Australia throughout this recovery period are occasional bouts of sharp market volatility.?” Source http://www.financial-planner.com.au/2011/09/how-australia-is-placed-to-weather-the-global-economic-t… [...]