A guarded warning from federal Treasurer Jim Chalmers should have all retirees and older Australians re-examining their plans to take advantage of financial opportunities.
Mr Chalmers said on Tuesday that while the world faces a recession next year, the Australian economy would probably ride it out.
“The Budget that I hand down in two weeks’ time won’t have an expectation or a forecast that the Australian economy falls into recession,” he said.
Dr Chalmers will hand down his first Budget on 25 October.
He said that while Australia was in “much better nick” than most other comparable countries, we “won’t be immune” from a global downturn.
“I’m optimistic about our country, I’m optimistic about our economy, but first we are going to have to navigate what are increasing global conditions,” Dr Chalmers said.
Deloitte Access puts Australia’s financial resilience down to the high commodity prices our exports are attracting due to the world’s appetite for our mining production and food exports – especially due to the Ukrainian-Russian war – and better-than-expected unemployment figures, which increased government revenue. We also saved well during the pandemic.
However, while Australia may ride out an international financial slump, the World Bank said in a press release that the world may be “edging” towards a global recession in 2023 and a string of financial crises.
“Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades – a trend that is likely to continue well into next year,” the report stated.
“Several historical indicators of global recessions are already flashing warnings.”
So what can you do to protect your finances during an economic downturn, especially if more interest rate hikes are predicted?
There are two sides to interest rate increases.
While interest rate rises are hard on people with loans, if you have money in the bank, it’s time to shop around for a better rate.
With a little research and some sound financial advice, you should easily be able to find a financial institution offering an interest rate better than the big four rates.
And if the idea of transferring savings to another provider makes you nervous, try a fixed term deposit for a smaller amount, invested at six-month intervals, to test the waters.
At the very least, by transferring a smaller amount and not the lot, you can avoid the pain of switching any direct debit payments to a new account.
If you have been considering shares, a recession can be a good time to nab ‘bargains’. But timing the market requires a crystal ball, financial advisers warn.
Personal finance expert Noel Whittaker says there is usually at least one occurrence every year that will cause share markets to drop significantly.
“The natural reaction is to want to get out and go back in when the markets change,” he writes. “However, the reality is that nobody has been able to consistently and accurately forecast the direction of markets, and when they turn upwards they normally do so suddenly, leaving those who intended to get back in when the ‘time is right’ stranded.”
It may be time to examine your portfolio, shed any low-performing share parcels and go where the money is. While consumers will drop discretionary spending during an economic downturn, people still need utilities, fuel and energy, food, internet services and healthcare.
Add to that list renewable energy, with Dr Chalmers hinting there might be more government encouragement for investment in that area.
He said that in the face of soaring energy prices, the government would focus on transforming the sector to provide cheaper, cleaner and more reliable sources of power.
Are you worried about a global recession? Will you be reconsidering your financial position? Why not share your thoughts in the comments section below?
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