AA - May 2021

Author:  Tess Rodrigues in Property Industry
PROPERTY FACTOR
18 May 2021

Prepare for Impact!

Hearing what is happening with the US economy post the pandemic, leaves us feeling a little less than comfortable. It is often said that when the United States sneezes, the rest of the world catches a cold. Best you start stocking up on tissues.

The good thing about being an economically challenged country is that we have a couple of months warning before we start to feel the knocks. However, it is to our detriment if we don’t heed the smoke signals coming from the northwest.

Some small businesses, which employed almost half of the lower-income workforce, disappeared altogether, while others are finding it hard to recover, resulting in the worst unemployment rates at the lower-income level in 13 years. Income inequality, which affects many aspects of our society including health, wealth and crime, has worsened. The poorest are getting poorer and more desperate.

Entire industries such as the hospitality and travel industry collapsed. The middle-income sector experienced severe loss of income in one form or another, be it because of retrenchment or loss of paid hours. These folks needed to adapt and adjust. Many were able to cut back on household expenditure and find alternative income streams, discovering a healthier, more constructive substitute to the 9-to-5 jobs. As the economy starts to show improved activity, this recalibration has resulted in businesses scrambling to fill positions with qualified, trained personnel, negatively impacting output.

While the GDP took a nosedive, government spending accelerated. The lack of supply and continuous consumption has resulted in headlines such as “US inflation hits a record high since 2008”. The Federal Bank needs to adopt a holdback-and-release strategy because if they increase interest rates too quickly, they will short-circuit the recovery and if they react too slowly, inflation will run ramped. Wendy Edelberg, a former chief economist of Congressional Budget Office, described this as a “chaotic recovery”.

What should we be prepared for?

  • Price increase in goods and services
  • Interest rate increase
  • Increased poverty, homelessness and crime
  • Increase in airline travel
  • Limited access to funding, especially for those who missed payments on their existing facilities.

What should you do in the interim?

  • If you wanted to buy property, do so now. When interest rates increase, you will qualify for less. Combined with property inflation, you will pay more for less.
  • If you think you are going to need extra cash to survive the difficult transition and want to release equity on your property, do so now.
  • If you can afford to save, save and save again.
  • Repay outstanding debt as much as possible, starting with the most expensive debt.
  • Find ways to increase your monthly income.

Even though the effect on our economy post the pandemic will not be as severe as that of the United States, simply due to the scale of markets, in our humble opinion, the worst is yet to come and we have approximately 6 months to prepare for impact. Do whatever you can to reduce financial pressure and ensure that you come out of this healthy, wealthy and chilled.

The original article can be viewed here: