The scary new normal?

You’ve gotta hand it to the banks – they really do know how to spoil a party!

Just as business groups, consumers and entrepreneurs had stopped cheering the RBA’s decision to cut rates by 50 basis points, NAB became the first major bank to take some of the shine off that decision, announcing it would only pass on 32 basis points of the cut to mortgage holders and business customers.

Commonwealth Bank has passed on 40 basis points to its mortgage holders, which is better, but still not what consumers and business owners want to see. Then again, the RBA did tell us this would happen and it appears that the bank cut so hard just to ensure that the rate relief the banks did pass on was decent.

The banks have also highlighted their exquisite sense of timing over the last two days – as NAB and CBA were refusing to pass the entire rate cut on, ANZ and Westpac were unveiling $3 billion half-year profits.

Speaking after delivering his result, ANZ chief Mike Smith made some really interesting points about the state of the economy and what the rate cut would do to confidence.

His theme was that the RBA’s latest big cut wasn’t going to be a quick fix and businesses and consumers would wait for “real stability and consistency” before their caution would lift.

But he also had a blunt point about the multi-speed economy that has become one of the real issues for Australia’s business community – get used to it, because it’s normal.

“We just got used to the situation pre-crisis, where everything was firing on all cylinders,” he told investors.

“That’s actually not how a normal economy does operate.”

Frankly, that sounds pretty scary to me, particularly when you consider Smith’s other point on the outlook; that the “work out” phase that the global economy entered in 2008 at the onset of the GFC is only halfway through.

“This is going to cause volatility in markets for many years,” Smith said.

These aren’t exactly welcome points Smith has made, but you can see the logic. Economic shocks like the one the global economy experienced in the GFC cannot fix themselves in under five years – this hangover the Australian economy finds itself in shouldn’t be a surprise, although I would argue the length of the hangover and the pain caused by it has shocked many entrepreneurs.

The idea of a multi-speed economy being the “normal” environment also isn’t welcome, but it does create an advantage for nimble SMEs.

Reading the state of various sectors isn’t easy and if you’re stuck in a struggling state or region, there is relatively little you can do.

But for those businesses that can continue to take the pulse of the market there is the opportunity to target the better performing sectors and steer clear of the stragglers.

We’ve seen the recruitment sector do this very well in recent years by focusing more on mining and, to a lesser extent, the infrastructure and construction sectors have done similar things.

If you are stuck exposed to one sector, approaching your customer base as a sort of mini multi-speed economy might be another tactic. Try to read closely how your various customers are performing and figure out which ones you should support and which ones you should avoid.

The key is staying incredibly close to the market and being ready to spot and take opportunities when they arise. No one does this better than smart SMEs.


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