NAB May Economic Update

The National Australia Bank issued its May Economic Update last week.  Key points are:

  1. The global economy has been hit by several shocks since mid 2011:  the economic slowdown in the Euro zone, monetary tightening across emerging market economies and increased uncertainty, volatility and risk aversion in financial markets.
  2. Australian businesses remain confident that business activity will pick up in the near term.  Mining continues to outperform other sectors with manufacturing conditions remaining depressed.
  3. Non-rural commodity prices have declined with concerns that slower growth in emerging economies such as China will lead to lower demand.
  4. A fall in the overall unemployment rate from 5.2% to 4.9% masks some underlying weaknesses.  Most of the growth is in part time jobs while the participation rate is back down to levels of 2 years ago.
  5. Conditions in the retail sector remain weak.  Heavy discounting is the major factor in propping up levels of sales.
  6. Based on the current state of the economy further easing in interest rates is expected with another RBA induced cut of 25 bps anticipated in August.

 In these relatively uncertain times we are fortunate to be living in a country that is well positioned to weather the global economic storm.  Nonetheless, it is advisable to take a measured approach to the management of your finances.  If you have a non deductible home loan, this is another great opportunity to accelerate your repayments to reduce the term of your loan and build in a buffer against any possible short term financial setbacks that may come your way.

It is also an opportune time to reconsider your risk management.  Mortgage protection cover can mitigate your financial risk due to illness, injury, death or even involuntary unemployment.  You could also look at reducing your interest rate risk.  Fixed rates are presently at relatively attractive levels;  for example, many lenders offering 3 year fixed rates in the range 5.71% pa to 6.14% pa.