Is the ASX and Australia getting closer to a recession? Some analysts seem to think so.
Australia hasn’t had a recession since September 1991. For more than a quarter of a century Australia’s economic growth has been going upwards. There is a technicality that a recession is two negative quarters of GDP growth, meaning a growing population helps the statistics.
But, growth does not go on forever. It is normal for countries and share markets to occasionally go through a rough patch.
Is The ASX Getting Closer To A Recession?
We are always getting closer to a recession, assuming Australia does have a recession in the future.
But, the International Monetary Fund’s leading Australia economist, Thomas Helbling, has said that the falling Australian housing market is worse than first thought, according to Australian Financial Review reporting.
Mr Helbling’s key message was that Australia’s economy is in a delicate situation and this has increased the need for quicker infrastructure spending and perhaps RBA interest rate cuts. He did point out that the projected infrastructure spending is actually a bit less than previously scheduled budgets.
The IMF had been expecting Australia to deliver growth of 3.2% in 2018 and 2.8% in 2019. However, the Australian Bureau of Statistics (ABS) stats show 2018 growth was only 2.8%.
What does this mean for the ASX?
The ASX is much more domestically focused than other share markets like the US and the UK.
More than 20% of the ASX is allocated to the economically-cycle big four ASX banks of Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC). On top of that, a bigger percentage of their loan books are dedicated to residential mortgages compared to overseas banks.
Australian property is a huge driver of the economy. Not just the banks, but there is a large amount of jobs in large-scale construction (think huge apartment buildings that require cranes), small property construction (such as townhouses) and renovations.
There is a large group of ASX businesses linked to property such as Wesfarmers Ltd’s (ASX: WES) Bunnings, Reece Ltd (ASX: REH), DuluxGroup Limited (ASX: DLX), Nick Scali Limited (ASX: NCK), Beacon Lighting Group Ltd (ASX: BLX), JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN), Adairs Ltd (ASX: ADH) and so on.
The importance of a reliable property market for Australia cannot really be understated.
It’s impossible to know whether Australia will have a recession, or how long property prices will fall. What I do know is that one of the best ideas might be to own reliable ASX shares regardless of what’s happening in the economy, such as the businesses mentioned in the free report below.
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