Australia’s Hidden Economic Crisis

DG Institute
DG Institute

Published 5:21 am 17 Sep 2021

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On the surface, Australia’s economy seems to be on the rebound from COVID-19. However, when you dig a little deeper, things aren’t so pretty.

One could be mistaken for thinking that Australia’s economy is on the mend. We just dodged a recession last quarter, and now, official ABS figures show that unemployment has reduced from 4.6 per cent in July to 4.5 per cent in August.

This is down from a 22-year peak of 7.4% in June 2020, and reflects a continued improvement since Australia’s unemployment rate returned to pre-pandemic levels in June.

And, finally, today Scott Morrison announced that Australia will hit it’s 70 percent target for single doses of the COVID-19 vaccine for those aged 16 and above. 

With all of this in mind, it would appear that things are turning around for the country, and in some respects this is definitely true. However, if you dig under the surface of these statistics, there are many causes for concern in Australia’s economy.

Has Unemployment Really Improved? 

On paper, Australia’s unemployment rate is at its lowest level in almost 13 years, despite half the country being in the grips of lockdown. However, this is really just a technicality.

The definition of unemployed in Australia ignores two crucial things: underemployment, and those that have simply stopped looking for work. 

When we look at these figures, we can see that things have been getting worse for Australian workers. 

In August, The participation rate dropped from 66 to 65.2 per cent, with 211,188 fewer people in the labour force than in the June survey. 

“Beyond people losing their jobs, we have seen unemployed people drop out of the labour force, given how difficult it is to actively look for work and be available for work during lockdowns,” explained Bjorn Jarvis, who heads labour statistics at the ABS.

On top of people simply ceasing looking for work, those in the workforce are seeing their hours drop, particularly in locked down areas like Victoria and New South Wales. 

Hours worked nationally fell by 3.7 per cent last month, though NSW bore the brunt of the losses, with hours worked down 13 per cent since the lockdown started.

People working just one hour per week are technically classified as employed, even though they will undoubtedly be unable to support themselves on these hours. 

It gets worse 

On top of a thinly-veiled unemployment crisis, many Australians are struggling to repay their loans, according to the Australian Banking Association. 

Requests for hardship assistance (which includes deferring credit card payments and waiving fees and charges) have nearly tripled, up to 57,000 from 20,000 last month , including over 30,000 loan payment deferrals on home and business loans.

Anna Bligh, Chief Executive Officer of the Australian Banking Association has said that:

“Over the last month, we have seen a substantial rise in business owners putting their hand up for assistance, and I encourage anyone else who is feeling the strain to do the same.” 

According to the ABA report, the vast majority of customers looking for deferral assistance are in NSW, with 57% of all hardship requests, 69% of housing deferrals and 72% of business deferrals located in NSW. 

This data follows data from Finder which shows that more than half of all mortgage holders in Australia are concerned about when interest rates rise, and 15% of Australians don’t think they will have the capacity to make their repayments when they do. 

When it comes to mortgage stress, the rule of thumb is that any household paying more than 30 percent of their pre-tax income on their mortgage is considered under stress.  

According to that definition, most of Australia is currently facing mortgage stress, with Canberrans paying 38%, Hobart residents paying nearly 39%, Melburnians paying 44.5% and Sydney residents spending nearly 60% of their pre-tax income on their mortgage. 

Is the property market too hot? 

While the job market remains precarious amid ongoing lockdowns, and many are struggling to repay their debts, the property market continues to soar in Australia.

A fear of missing out has prompted many Australians to rush into the property market amid record price growth and historic-low interest rates, driving prices up 19 per cent higher than they were before the pandemic. This sharp spike in prices has prompted many to over-extended themselves financially in order to get into the market, and many are now either at risk of defaulting on their mortgages. 

And it looks like things are going to continue heating up in the property market for the rest of 2021, as CoreLogic has identified that housing markets have seen improved performance after emerging from lockdowns. 

So how can everyday Australians get ahead? 

You haven’t missed out…yet 

With wages going backwards, investing your wealth is the only way to really get ahead financially in today’s economy.

However, while the property market has been scorching-hot this year, things are going to slow down in 2022. 

We’re already seeing issues of affordability causing a slowdown in price growth in places like Melbourne and Sydney, and NAB has had to revise their 2022 price projections downward to a 3.6% price growth rate in 2022, compared with the 19+ percent growth we saw this year. 

Put simply, we’re in the eleventh hour to generate wealth simply by buying and holding property. 

This is why you should focus on manufacturing your own wealth, independent of the market cycles – through Small Property Developments. 

Strategies like DA uplifts, subdivisions and residential unit developments can yield up to six figures of profits in a much shorter timeframe than other property investments – and we can teach you how

Our Property Development Masterclass Livestream will teach you the same lessons that have made six figures in just a few months for many of our students through small property developments, but time is running out.

We have limited spots available, so don’t miss out. Register below.

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Good Debt Vs Bad Debt With Dominique Grubisa - DG Institute

Lawyer, Asset Protection Specialist and Property Educator

Dominique Grubisa is a practicing lawyer with over 25 years experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author.

This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

About DG Institute

Founded in 2009, DG Institute strives to empower everyday Australians to grow and protect their wealth. Our goal is to provide direction, motivation and inspiration to our clients and help them perform at their very best. We do that through our professional services, in addition to teaching them how to grow their wealth through property and business education.

This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

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