Newsletter #1

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Market outlook:

With all the negativity around its easy to forget that the economic fundamentals in Australia and globally are looking pretty good. This negativity is best reflected in the Westpac Melbourne Institute Index of Consumer Sentiment which fell by 2.3% to 102.7 in February from 105.1 in January.

On the positive side, our economy grew by 2.4% over 2017 and the RBA expects faster growth in 2018. These views are bolstered by the fact that employment levels have grown across the country, with unemployment levels down at 5.5%. The RBA also expects higher growth in exports and a greater level of non mining business investment. In addition, inflation and interest rates remain low.

According to the RBA, the prices of a number of Australia’s commodity exports have fallen recently, but remain within the ranges seen over the past year or so. Australia’s terms of trade are expected to decline over the next few years, but remain at a relatively high level.

In addition, the global economy has strengthened over the past year. A number of advanced economies are growing at an above-trend rate and unemployment rates are low. The Chinese economy continues to grow solidly. Globally, inflation remains low.

One source of uncertainty is subdued household consumption. This, coupled with slowing, and in some areas declining, property values is a concern for the SME sector.

Property market and impact:

According to CoreLogic, property prices in our capital cities have fallen in the last quarter. Over the last quarter capital city prices fell by 0.9% with March reducing by 0.2%. The annual growth rate across the nation was 1.2% which is the lowest since 2012. Growth in rental rates and dwelling approvals both declined over the year.

For prospective new home owners this is great news. For some SMEs with overdrafts, a slowing and perhaps declining property market may create some problems with business finance. Most overdrafts for SMEs are linked to equity in residential property and increasing equity has created the ability to increase overdrafts. As property prices decline, there is a real chance that structural issues within some SMEs may no longer be able to be covered up by increasing overdrafts. Whilst this may lead to some pain, it will lead to a higher uptake of factoring – the correct type of funding for SMEs to improve cash flow.

Done Deals:

At Australian Invoice Finance, we recently launched our ‘Done Deal’ series on how we have supported companies with cash flow finance. These are real client experiences with debtor finance that we’ll publish on the website. Read Done Deal #1.

That’s all til next month. Until then, have a look at these great reads:

How does invoice finance work?

Tips for nailing a financial services startup.

How the NPP will transform small business.

Greg Charlwood
Managing Director
Australian Invoice Finance Ltd
0421 006 873

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