Home About Our Blog All We Need for Christmas is a Little More Confidence

 

The recent weather reminds us of how the economy has performed during the past twelve months – lots of violent change with everyone wondering what’s coming next.

 

Our decade long mining boom came to an end in 2012 but in the past year it has become particularly nasty with the price of iron ore (one of Australia’s major exports) falling 45% to US$ 70 per dry metric tonne. The major mining companies, as a result of the rapidly falling iron ore price and languishing coal price, have been slashing costs and deferring any new project activity.

 

While the Australian mining sector was closing down new exploration and production activity, in June the oil price started falling and has now fallen 35% to US$ 66 per barrel, which is causing issues for our massive liquid natural gas and coal seam gas industries. 

 

The current turmoil in our mining and energy sector is why unemployment has pushed up above 6%, the highest level in more than a decade and the economy is only growing at less than 3%, below the long term average. Expect only mild improvement in the domestic mining or energy sectors during 2015.

 

Interestingly but unsurprisingly the Australian dollar has stayed relatively high during 2014. Nevertheless it too has recently started to drift steadily lower, in sympathy with the ailing mining sector, falling 11% since September to be just AUD 83 against the US dollar. 

 

 

Most Australian industrial companies are in good shape after locking in low interest rate loans for longer terms and eliminating any unnecessary operating cost during 2014. Unfortunately, many are still returning most of their profits to shareholders in dividends rather than investing in growth strategies. Nonetheless, the industrial sector should have a stronger year in 2015, as energy costs fall and the economy picks up.

 

But what we really need for Christmas is for a big pickup in consumer and business confidence to ensure we all have an extraordinary 2015. 

 

Households need to feel good about the future and stop saving and start spending. 

 

Managing directors need to feel buoyant and authorise spending on new growth initiatives. Together, with just a little more confidence, we can all have a happy, hearty and prosperous 2015.

 

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