A virus is ravaging societies across the entire world right now, and it seems very few are immune.
I’m not talking about the Coronavirus. I’m referring to the rampant hysteria and fear induced behavior, creating a tsunami like ripple effect throughout developed (and developing) economies, in virtually every corner of the globe.
Everywhere you look, we’re being inundated with Special Reports and stories blown out of all proportion (with very little fact checking it seems), around the “dangers” of the virus also known as COVID-19, that allegedly broke out of a Chinese based research facility early this year.
Social (and mainstream) media is awash with posts of people fighting over things like hand sanitiser and non-perishable foods, as though they’re stocking underground bunkers; for a virus less lethal than the common flu by all accounts. And of course, let’s not forget “Toilet-Paper-Gate”.
While the jokes have been coming thick and fast about us Aussies and our love of loo rolls, there’s a very serious side to, not just the panic buying and how it will impact individuals at the checkout, but also the millions more potential casualties of this virus.
Not just those who get sick from it directly…but the many businesses – big, small and in-between – and financial markets, at risk from the continued fallout of the panic currently sweeping our planet.
With Australia’s economic fortunes so closely linked to the origin of the pandemic outbreak – and hence where much of the fear is currently being funnelled – local market forecasts are looking, let’s just say, less than optimistic.
We’ve long relied on China for much of our manufacturing, with large swathes of our local industry systematically handed over to them towards the end of last century, as well as things like the mining sector, retail, tourism and of course housing.
If the last big property resurgence demonstrated anything, it was how much Chinese investors love a good old slice of Australian real estate.
Following a summer of disastrous bushfires, off the back of a severe and prolonged drought that had already left many communities across our wide brown land trying to re-assemble their lives and livelihoods, this was the last thing our economy needed.
A recent media release from the Organisation for Economic Cooperation and Development (OECD) predicted that even a “mild and contained” outbreak of coronavirus would wipe 0.5 percentage points from Australia’s economic growth for 2020.
However, ANU economics professor and former Reserve Bank board member Warwick McKibbin, along with PhD student Roshen Fernando, warned that GDP loss from a “worse-case-scenario” outbreak could be as much as 7.9 per cent. While a milder global pandemic could diminish our annual growth by 2 percentage points.
No doubt many businesses and individuals will feel the pinch. The key, ironically, is NOT to panic! Quite the opposite actually.
When people go into fear, all logical reasoning goes out the window. In times of crisis, you want your wits about you. Seek advice where necessary. Seek assistance where necessary. And as always, consider how wisely you’re managing your finances – be it personally or professionally.
If we use these times to find“holes” in how we’re operating and managing our money, acknowledging the risks we should always be diligently be aware of, these experiences can in fact present valuable opportunities to make our businesses and economies stronger in the long run.
A silver lining?
As is often the case, I would suggest that the one, solid silver lining in all of the doom and gloom surrounding our economy right now, is real estate.
And the Reserve Bank, as well as commercial lending institutions, big and small, know it.
Property has perpetually been used to prop up our financial markets throughout this country’s (albeit brief) history, and in the wake of COVID-19 pandemic panic, it won’t be any different.
We saw the Reserve Bank take action at its March meeting last week, dropping the cash rate to a new record low of just 0.5 per cent.
Leaving very little wiggle room as we head further into 2020, the RBA was reluctant to take a “wait and see” approach around the potential severity of the economic fallout.
In a press release, after what was no doubt a rather stressful round table meeting of the Central Bank’s Board, RBA governor Phillip Lowe said, “The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors.
“The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in ether March quarter is likely to be noticeably weaker than earlier expected.”
After Prime Minister Morrison urged the big four banks to “do their bit”, and pass on the recent rate cut in full, Westpac reduced rates across all variable home loans and “cash-based” small business loans and overdrafts, by 25 basis points.
Followed by this statement from David Lindberg, chief executive of Westpac’s consumer banking division; “We recognise that COVID-19 will have a direct impact on our nation’s economy and we want to provide additional support to our small business and come loan customers at this unprecedented time.”
Other banks and smaller lenders have since followed suit, as players in the home loan industry attempt to gain a competitive foothold, on what’s proving to be a rather turbulent, global financial stage right now.
Property likely to remain predictably stable
If there’s one thing history has illustrated we can always rely on, it’s real estate. The simple fact is, everyone requires accommodation. It’s a basic necessity for survival (much like loo paper seemingly!). And that’s not going to change anytime soon.
Likewise, successful property investors don’t simply sell up when global economic markets take a hammering, due to whatever X-Factor happens to be impacting them at any given time. We’re in it for the long haul. Driven by facts and numbers, not fear.
Stay calm, and keep your wits about you.
And if you’re in a position where you can take advantage of this incredibly low interest rate environment to potentially refinance your property investment portfolio, reach out to your friendly mortgage broker for the best advice, suited to your specific circumstances.
We might even have a few squares of toilet paper to spare!