Posted by Anton Murray Consulting on 2 Aug, 2022
The next generation of Australian financial services grads are stepping into perhaps the most challenging economic environment in decades. While afforded historically low levels of unemployment, there are dark economic clouds ahead. In May 2022, the RBA raised the cash rate for the first time in eleven years to combat rising inflation. Indeed, largely due to contractionary fiscal budgets leaving the RBA no wiggle room, throughout the past few years the cash rate fell from a relatively meagre 4.75% to a desolate 1.5% in 2016, and an emaciated 0.10% in 2020 to combat the impact of CV19. While Australia navigated the pandemic well, young Aussies building their careers are about to face the first recession in decades, public sector debt swelling to almost $1 trillion, global supply chains in tatters, a war in Ukraine and an unstable Asia-Pac geopolitical environment. With rapidly rising interest rates to combat inflation, there is likely a recession to contend with.
This melting pot of adversity can largely be attributed to the economic strategy employed by the government throughout the 2010s: trying to please everybody, but good times can rarely last. Long-term contractionary fiscal policy beginning in 2014 was seen as the answer to gracefully guiding Australia back to a balanced budget while maintaining economic growth and prosperity. But an ultra-low cash rate combined with generous state and federal government spending has created rampant inflation, running over 6% over the past 12 months.
Asset prices have boomed as a result of a sustained period of record low cost of capital, and nowhere is this more apparent than in real estate. According to the RBA, the average price of residential dwellings increased from $489,000 in March 2012 to $942,000 in March 2022. The Aussie dream of owning a home for a younger person feels increasingly out-of-reach. As interest rates on rented properties increase, so rents are also likely to rise.
However, it’s not all doom and gloom, as young Aussie workers are still afforded very low rates of unemployment to get a decent job, and with inflation at play it will mean wage levels are likely to see an increase in the years ahead. Interest rates are rising, but this will help to make home ownership more of a reality as house values decrease. Global supply chains are weakened, but this incentivises the return of local manufacturing and jobs. Energy prices have ballooned, but this has further underpinned the need for locally produced green energy, with renewable energy a massive growth area for jobs over the next decade. CV19 for many caused economic hardship and high public sector debt, but this has created a restructure of the workplace, creating diverse economic opportunity especially in Work-From-Home regional locations.
Undeniably, the current economic and industrial climate has shifted in 2022. It is clear that the burden of the economic adjustment will fall heavily on young people, but because of this shift, no one group will benefit greater than the young, adaptable and technologically savvy employee. In the years ahead it will be interesting to view how each economy in our region manages this inflationary post-CV19 period. Undoubtedly the university graduates of today will need to navigate the most turbulent economic waters in decades. However, these grads will no doubt be hardened through these tough economic times, to become the resilient financial services leaders of tomorrow.