A quarter of a decade recession free

Australia just recorded a pretty substantial event, we have just completed twenty five years recession free. During the last quarter of a century, as a country we have navigated through financial meltdowns, commodity price downturns, the tech crash and the Asian currency crisis.

Until recently, we had low federal debt and posted budget surpluses; that was crushed with a change in government and change in policy but we have limped out of that phase and won't see a budget surplus again until sometime after 2020. The state governments have been investing heavily in infrastructure projects with individual state debt ballooning. Noticeably, personal debt is soaring with indebtedness growing, the ability to circumnavigate further economic shocks is severely compromised.

We have had challenges along the way, we are currently experiencing an economic slowdown of sorts. The mining boom that sustained the country through the financial crisis of 2008-2009 is over, the construction boom has now transformed into the production phase where less manpower is required. The capital expenditure peaked in 2013, mining companies have deleveraged despite extensive capex programs although explorations programs being shelved.

Mining these days is a very automated industry, the iron ore mines are equipment intensive relying on computerised processes. Coal production is lower, base metals are experienced reduced demand although gold as a precious metal remains high. The workforce is transforming, higher skill-sets are required with lower staffing levels at mining operations now ensuring viability to remain competitive.

The service industries are recovering, tourism is steady and residential housing is motoring along. Some would argue the residential housing market is depressed. The financials of residential property aren't great, there has been so much speculation during the boom years driving median property prices to outrageous levels that capital city markets remain overpriced and exposed to financial shocks.

The Reserve Bank of Australia has dropped interest rates to record lows, the currency has devalued with commodity prices acting as a tool to enhance exporters; likewise, imports have become more expensive with a cost to the economy. The reduction of tariffs agreed to in numerous free-trade agreements have lowered the cost of imports whilst assisting export markets.

The fundamentals of the economy are changing, non-viable industries are closing and being shipped off-shore. Unskilled jobs are being moving off-shore along with low margin industries, the knowledge economy we hear so much has yet to transform the general economy - innovation is still some way off.

The economy is currently expanding through population growth, the principles that allowed the nation to record 25 years without a recession have been forgotten and I fear the lessons of astute management are being replaced with misguided notions of invincibility and complacency.

The residential property market has grown almost to the point of defying economic principles and our once dominant financial institutions are exposed. The country faces limited capital through savings, the remainder is sourced internationally. The skewing of scarce capital from essential infrastructure projects to residential property, an asset class not earning currency inflows is the greatest concern.