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How the Australian economy has exceeded all expectations

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Over the past 12 months, the Australian economy has experienced an incredible turnaround in fortunes while confounding all conventional wisdom. The overwhelming consensus from economists, as recently as September 2020, was that economic recovery would be a long grind from a deep recession. Instead, we have seen this conventional wisdom turned on its head with an accelerated V-shaped economic recovery.

Naturally, it would be naive to suggest there will not be any bumps in the road towards full economic recovery. The recent torrential rains in New South Wales and Queensland, the huge swings in investment markets in 2020, the coronavirus itself and the bushfires of late 2019 and early 2020 are all reminders that we never know what is around the corner and we must prepare for volatility in our investment portfolios.

After all, investors still face serious challenges. Interest rates remain at historic lows and - according to the Reserve Bank - will stay low until at least 2024. Governments and investors around the world are trying to make sense of conflicting signals coming from the global pandemic and the market rebound. Stock markets are reacting to the enormous stimulus packages delivered by governments, but valuations are elevated and volatility remains a concern.

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Economically, there is plenty of good news with the Australian economy outperforming all expectations. Consider unemployment, a critical indicator of the direction and health of an economy. With many commentators suggesting unemployment would be set to reach well into double-digit readings, we saw a peak of just 7.5% and an incredible rebound to just 5.8% as at February 2021.  This rebound in unemployment has been against the backdrop of JobKeeper being gradually phased out through the back half of 2020, and completely withdrawn from March 2021.  Accordingly, the economy is standing on its own two feet and the rebound in employment is a V-shaped return if ever there was one.

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The importance of the sudden rebound in unemployment cannot be overstated. It is people back at work. It is businesses reopening. It is an economy steeling itself against future volatility. Consider also the speed of this recovery against the 1980s and 1990s recessions. We see now a much shorter, sharper rebound as the economy rebuilds and people get back to work.

Importantly, the economic hibernation period also saw household savings leap to generational highs.  In raw dollar terms, this spike represented an additional $124 billion in household deposits across the calendar year.

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This cash pile will be a key driver to increased consumer spending and continued growth in the economy over the coming years as savings levels normalise. It also represents a cash buffer for households against any other cost of living shocks or future unemployment and therefore an important economic stabiliser also.

Employment has exceeded expectations, interest rates are at record lows, and households are sitting on generationally-high levels of cash. With this dynamic, investors are continuing to search for fund managers, asset classes or markets where they can achieve low-volatility income. Fortunately, there are many opportunities beyond traditional investment considerations for investors to review.

Consider the asset class of secured Australian property credit. Secured Australian property credit draws on the resilience of Australia's $2.5 trillion residential and commercial property market and the stability of our lending and mortgage environment to create portfolios of low-volatility income assets for investors. Investors may also consider peer to peer investment opportunities to create an investment portfolio which suits their own personal risk and income objectives. This asset class has an increasing number of participants for investors to consider.

Investors should face this environment of low interest rates and heightened economic volatility with some optimism. Driven by a resilient, rebounding economy there remain significant opportunities for low volatility income to meet lifestyle requirements well into the years ahead.


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Troy Stratton is deputy chief investment officer at La Trobe Financial. He has more than 20 years' experience in the financial services industry. Prior to joining La Trobe Financial, he worked in London in a number of leadership roles at Barclays Wealth and HSBC's Retail and Wealth Management divisions. Troy is also a certified accountant and holds a Bachelor of Business and a Bachelor of Computing degree.

Michael Watson is La Trobe Financial's executive general manager - head of distribution for the Asia-Pacific region. He has a Bachelor of Business (Economics and Marketing), an MBA, a Diploma of Financial Planning and a Certificate IV in Mortgage Broking.