When the United States sneezes, Australia catches a cold, says a local professor of finance.
And no masks, jabs or social distancing will protect us this time.
The reaches of president Donald Trump’s seemingly arbitrary trade war with every single country will be felt even in Logan, according to Griffith University’s finance professor Robert Bianchi.
While a 90-day pause on the plan to hike tarrifs temporarily reinvigorated the stock market, US tarrifs on China rose to 125% and remained at 10% for most other countries.
With a recession possible, if not likely, in two of Australia’s biggest trading partners, Mr Bianchi warned we could see one of our own.
A more likely scenario would be the Australian economy entering a downturn, he said.
“Now’s the time to get your affairs in order,” Mr Bianchi advised people in potentially volatile industries.
“For the average worker in Logan, the question is, what’s their job security like? What are the chances of them losing their job?”
He said workers in an industry likely to slow down dramatically during a downturn or recession could face job losses.
“Job losses means people in financial distress, people selling their homes or people selling their investment properties if they can’t afford the monthly interest payment. With the losses, that will actually slow down the Australian housing market.
“Prepare for that potential outcome.”
Logan Chamber of Commerce president Arwen McGregor said local retail, hospitality, and entertainment businesses would likely be affected by a recession, with a decline of consumer confidence leading to reduced spending on non-essential goods and services.
“Furthermore, a recession can impact the housing market. We might see a slowdown in property sales and potentially a decrease in property values,” she said.
“This is balanced against predicted rate decreases, which may mean overseas investors keeping the prices high.
“Renters could also face challenges if their incomes are affected by job losses or rent increases.
“Local community services and charities may also experience increased demand as more people seek assistance.”
But with Mr Trump so predictably unpredictable, anything can happen.
“Tonight, while we’re asleep at 3am, Donald Trump could just turn around and make a U-turn,” Mr Bianchi said, just hours before Mr Trump paused his tarrif plan.
“And if he makes that U-turn, all of a sudden the stock market is going to roll back up, the trade war with China disappears.
“It is impossible to predict.”
On the positive side for mortgage-holders and small-business owners, Mr Bianchi said a recession would almost certainly mean the Reserve Bank of Australia would cut interest rates.
“Any RBA rate cut that was being planned in around June, may end up being brought forward.
“They’re now talking about a quarter of a rate cut, most likely in May if this trade war continues.”
Regardless, Mr Bianchi urged local business-owners to ensure their business was robust and strengthened to prepare for a potential downturn.
“If you’re a business that’s got a high level of leverage and gearing, if we’re going to go into a downturn you may not receive the cash flows that you normally receive.
“So can you restructure yourself or can you reduce the amount of borrowing that you have?”
He told households to heed a similar warning.
“For the normal mum and dad, if a recession is coming, what level of borrowing do you have and can you pay down those debts while you have a job?”
Ms McGregor encouraged local businesses to manage their cash flow meticulously by reducing non-essential costs, improving efficiency, and negotiating better payment terms with suppliers.
She also advised businesses to “focus on retaining your existing customer base”.
“Loyal customers are invaluable during tough times. Maintain strong relationships, provide excellent service, and consider offering incentives to encourage repeat business.”
She agreed with Mr Bianchi to explore reducing debt or refinancing, and avoid taking on any more.
“High debt levels can become a significant burden during an economic downturn.
“Finally, stay informed and adapt. Keep abreast of economic developments and be prepared to adjust your business strategy as needed. Explore opportunities for diversification and consider how you can adapt your offerings to meet changing consumer needs. Be wary of cutting back on essential marketing efforts entirely, as maintaining some visibility is crucial for long-term survival.”
Ms McGregor said Logan’s small businesses could boost their resilience and navigate any potential economic headwinds by being “proactive and prepared”.
“The Chamber is here to support our members through these times, providing resources and fostering collaboration within our business community.”
