Recovery Watch: 10 green shoots in our economy
We know it’s not easy for entrepreneurs to see through the economic gloom right now. But the worst is behind us. Really, it is.
Yes, conditions remain patchy at best. Yes, there is still plenty of economic data that suggests that full recovery is still some way away.
But you cannot take your eyes off the positive trends in the market. This is the time in the economic cycle when smart entrepreneurs act to get the jump on market.
With this in mind, today SmartCompany launches the Recovery Watch group blog. We know that you’ll want to see the green shoots of recovery before you’ll put those growth plans into action, so this blog will be dedicated to finding those green shoots.
We’ll look at major economic data releases, major deals and big news events and extract the insights that show the recovery is coming and what it will look like.
We won’t sugar-coat things – when the data looks grim, we’ll tell you.
But we will show you those green shoots so you can plan ahead with confidence and take your customers, boards, banks, suppliers and staff with you.
Let’s start by examining 10 reasons to take a glass-half-full view of the economy. We won’t lie; it hasn’t been easy to find these shoots. But they do point to an economy that still has solid fundamentals.
1. Europe’s bankers promise to do what it takes
We can’t pretend that Europe’s economy is anything other than a basket case, but for much of 2012 Australia’s business community has worried about things getting much worse, the break-up of the eurozone leading to a fresh credit crisis.
Late last week, Europe’s Central Bank announced a plan for a massive buy up of sovereign debt in a move that will help struggling countries like Spain and Italy keep borrowing costs down while giving the governments the funds they need to operate.
European Central Bank chief Mario Draghi is talking tough, saying that the buy-up will be subject to strict conditions and the ECB was not offering crisis-hit countries a blank cheque.
But he has vowed to do “whatever it takes" to keep the eurozone together – and that’s a real message of hope.
2. Franchising sector
Many sectors of the economy are hurting, but there’s one consistently successful sector – franchises.
According to an analysis released by PwC this week, franchises recorded 10% growth in both revenue and profit during the previous year. That’s well above the rest of the economy.
That covers a range of sectors, too. Non-retail franchises recorded a revenue increase of 14%, while retail franchises recorded growth of 9%.
The survey found these franchises are still growing too, with more opening new locations. They’re expecting good things in the year ahead, with profits expected to rise 10% in the next 12 months, and then 30% in the next three years.
Australia has one of the most rigorous and transparent franchising sectors in the world. That structure is paying dividends as companies in a range of sectors find security in a proven model of doing business.
3. Employment remains strong
CommSec economist Craig James put it very nicely when he said that the latest jobs data included something for everyone.
“The optimists could focus on the lower jobless rate and conclude all is fine. The pessimists would look at the fall in jobs and hours worked and conclude something more sinister.
“In truth though, the job market is softening, but only gradually. Employers aren’t keen to hire unless they have to, given the global uncertainties. But while jobs are being lost in some industries, clearly they are being created in other industries.”
The jobs market might be “softening” but it’s not struggling and is unlikely to. Skills shortages still exist in some industries and growing SMEs certainly aren’t giving up the hunt for talent. The labour market is in good shape.
4. Australia remains on track for a 22nd consecutive year of economic growth
Last week’s GDP data allowed Australia to celebrate a very special anniversary – after posting 3.7% growth in the 2011-12 year, we have now posted 21 years of consecutive economic growth.
Not surprisingly, we didn’t celebrate this 21st in the traditional way – a big party, embarrassing speeches and one of those silly keys that everyone signs – given that for many sectors it doesn’t really feel that growth is rolling along smartly.
But we do need to stop and recognise this for the incredible run that it is and realise that it will continue. CommSec’s Craig James expects growth will be 3.5% in 2012-13, slightly above long-term averages.
Think of this GDP growth figure as the base that can underpin out strong recovery.
5. Corporate Australia is still in good shape
Falling commodity prices have weighed heavily on the sharemarket in recent weeks and a lot of the headlines from the recent ASX profit reporting season were poor.
But corporate Australia is not in as bad shape as you might think.
According to analysis by AMP chief economist Dr Shane Oliver, the final wash up from the reporting season saw:
- Earnings per share fell by around 2% over the 2011-12 financial year, driven by a roughly 17% fall in resources sector earnings due to falling commodity prices, capital investment and cost blowouts.
- There was modest positive growth for banks (+1%) and industrials (+6%).
- Overall, 35% of results came in better than expected, which is below the norm of 43%, but up from 31% in the last reporting season. But only 15% of companies came in worse than expected, which is down from 23% in the last reporting season.
- This relatively good news means 52% of companies saw their share prices outperform the market on release day.
- 67% of companies have seen profit gains on a year ago.
- Statements about the outlook for earnings were “mildly positive on balance” although consensus estimates for 2012-13 profit growth have fallen to 8% from 10%.