Five reasons to be cheerful about the economy

Economic news has been largely doom and gloom over the past few years, but there are five reasons the Australian economy is moving toward happier days.

SME profits are on the rise, unemployment figures are steady and consumer confidence is on the up, collectively spelling good times in the future for Australian businesses.

SmartCompany consulted with chief economist and head of investment strategy at AMP Capital Investors, Shane Oliver, and looked into the key signs the economy is doing better.

1. SME profits increasing

Australian SMEs are performing well with 54% posting profit increases in the six months to December.

The findings released yesterday by the Entrepreneurs’ Organisation reflected overall positivity among Australian SMEs in terms of market sentiment and net profits.

The survey indicated 82% of Australian EO members expected an increase in revenue growth in the next six months and 76% predicted an increase in net profits.

Oliver says the economic health of SMEs is vital to the Australian economy.

“SMEs are always important because that’s where the jobs and the growth and the profit increases come from.

“SMEs are the lifeblood of the economy. We were given a huge boost from the mining boom, but now it’s ending the focus will be back on the SMEs to drive the economy in the future,” he says.

Oliver says the profitability of SMEs and the recent survey have helped boost consumer confidence.

2. Consumer confidence rising

The Westpac consumer confidence survey released yesterday showed the biggest jump in consumer confidence since September 2011.

The February Westpac-Melbourne Institute consumer sentiment index shows confidence is up 7.7 points to a 108.3, its highest level in 26 months.

The biggest boost came from people aged 18-24, whose sentiment increased 32% on the index and sales and clerical staff also increased by the same amount.

Oliver says the rise in consumer confidence is influenced by a range of factors.

“I think it’s a combination of things, the economic impact from the European crisis (particularly in Spain and Italy) is fading and consumers are hearing more positive stories about China and the US and so the negativity is being removed.

“They’ve also noticed the size of the sharemarket increasing and the housing market is also doing well, adding to an increased feeling of household wellbeing.

“Lower interest rates over the past year have also contributed to this confidence. The older demographics living in the suburbs with a mortgage have had a huge boost from the low interest rates, so their finances are looking better,” he says.

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