The 'good old days' of Australia's economy are here
A trip back in time shows we're not doing too badly, writes Craig James
On July 17, 1995, CommSec came into being. And to reflect on the 20th birthday we decided to look back at some changes that have occurred since that date, notably in the economy and financial markets.
Sometimes it pays to look back and recognise where we have come from, what has changed and what has been achieved.
Especially now, as in recent months Aussies have fretted about the state of the economy. But when you look back and compare the current situation with that of 20 years ago, it is clear that we are doing OK at present.
When CommSec started in 1995, the economy was still in recovery mode after the 1991 recession (remember those?), with annual economic growth just below 3%. Underlying inflation was encouraging at 2.3%, although the headline rate of inflation stood at 3.7%. And unemployment was still high at 8.4%, after peaking at 11.1% in December 1992.
Interest rates were high by current standards after rates were increased in late 1994 in an attempt to stem inflationary pressures. The official cash rate was aggressively lifted from 4.75% to 7.5% between August and December 1994. The cash rate ended up being held at these highs until July 1996. And the Aussie dollar was hovering near US73c, having retreated from around US77c at the start of the year.
Now turning attention to the present, clearly the economy has been growing at a slower than "normal" pace. The current annual rate of economic growth stands at 2.3%, down from the five-year average of 2.7% and longer-run averages of 3%-3.25%.
Still, that's a key reason why interest rates are at record lows - economic growth is slower than normal and inflation is under control. The underlying rate of inflation stands at 2.3%, just as it did 20 years ago.
But one major point of difference with 20 years ago: unemployment is far lower, near 6%. Twenty years ago it was 8.4%.
As noted, interest rates are far lower now than 20 years ago and the Aussie dollar is around US75c. With inflationary pressures contained and economic growth slower than normal, the Reserve Bank can run a stimulatory monetary policy.
In 2014-15, total returns on Australian shares (All Ordinaries Accumulation Index) grew by 5.7%. Returns on dwellings lifted by 14.1% while returns on government bonds rose by 5.8%. At face value this suggested a relatively rare event - bonds, property and shares all rising over the past year.
But back in 1994-95, total returns on Australian shares grew by 6.4% with returns on dwellings up by 2.3% while returns on government bonds rose by 11.7%. And the average cash rate was 6.6% compared with 2.4% in 2014-15.
Over the past six years, returns on shares grew on average by 10.4%pa, firmer than the 8.9% annual average rate in 1994-95.
So from time to time we hark back to the "good old days". But it is clear that if we track back 20 years ago, it is hard to find elements of that time that were remarkably better than the current situation.
Rather we should accept the times for what they are and embrace the opportunities that present themselves now.
Some investors may still hanker for the record highs set on the sharemarket back in November 2007. But 20 years ago, it was a similar situation. The sharemarket hit highs in September 1987 but in July 1995 investors were still waiting for new highs to be achieved.
The more things change, the more they stay the same.