Business confidence has fallen to its lowest level in 18 months. The resources sector is in decline with investment and export prices plunging. Unemployment is at its highest since 2003.

To stimulate the economy, the RBA may cut rates to 2% in May and there are predictions of further cuts to 1.75% or below. The local dollar could drop to 60 US cents or even lower.

Some business leaders are suggesting caution on further rate cuts because the economy has already been stimulated by the weaker dollar and low oil prices.

While rate cuts could see further price rises in the hot property markets of Sydney & Melbourne, the RBA is issuing warnings of significant falls in house prices if speculative demand continues on the back of cheap credit. The same cheap money is also driving up the local share market.

The concern is that with the resources sector already in trouble, if property prices fall, wealth reduces, which is likely to lead to a general worsening of economic conditions with homeowners cutting spending across all sectors of the economy.

When spending falls, businesses fail

When people are concerned about the economy, they save money in anticipation for a rainy day. This has occurred since the GFC in 2008 with the RBA reporting that most Australian households currently have low levels of financial stress. Corporate insolvency and personal bankruptcy numbers are down and people have only recently started to relax their spending a little.

But what if things are about to change? Is it all turning negative?

Australia has not had a recession in over 20 years. Interest rates are low. The oil price is down. The cost of consumables and groceries is low. Surely if you have a business or employment, there has never been a better time than now?

So why is unemployment rising? Is it the mining and resource sectors only? Do people perceive risk in the economy? Will this fear become a self fulfilling prophecy?

There is no doubt that if the property market falls and people see their wealth reduce, that this will have an effect on consumption. The fears in the market, whether real or imagined will also have an effect on spending that will have flow on effects to all businesses. And this could see the start of an ever increasing downward spiral.

As spending dries up, business lay off staff and this adds to unemployment. This in turns adds to the general unease in the economy and people spend less. As this happens, businesses begin to struggle and corporate insolvency and personal bankruptcy increase again.

Business Survival Techniques

As the talk of doom and gloom intensifies, it is important to implement director asset protection strategies and for small business people to do whatever they can to protect their business  if the worst is to come.

The Insolvency Experts have developed a video series to assist in small business survival techniques that you may find of interest. Tip 1 was introduced in an earlier blog and Tip 2 is below.

Surviving in business is more than a matter of luck. It takes planning and thought in many areas of one’s business. Some of the survival issues that are addressed include;

1. 1. Director Asset Protection & structures
   2. Budgeting and Preparation of Financial information
   3. Cashflow management techniques
   4. Implementation of policies & procedures

1. The giving of credit and your protection

A Final Note

Whether or not it can be explained, it seems there is a growing feeling of unease and this could manifest itself in a major economic outcome such as a deep recession or even depression.

While governments around the world have tried to counter the reduction in consumer spending by printing money and pumping it into the economy, it is not clear whether that strategy has done anything other than increase the amount of money in circulation and to raise government debt to unsustainable levels.

What is your experience and belief of where the world is heading?

As always, if you are facing financial difficulties, take control, find out your options and act in your own best interest. Call The Insolvency Experts for help.

Source: smh.com.au; RBA warning; personal savings graph; corporate insolvency graph; personal bankruptcy graph

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Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.