ANZ (ASX: ANZ) CEO Shayne Elliot has said that a lot of people think Australia is in a recession.
ANZ is a leading Australian and New Zealand banking institution, with a presence throughout the oceanic region. ANZ is one of the Big Four Aussie banks and derives much of its revenue from mortgages, personal loans and credit.
ANZ’s Insight Into The Australian Economy
ANZ’s numbers show that people are using the RBA rate cuts to reduce housing debt rather than spend more on cars, restaurants or retail.
According to reporting by the Australian Financial Review, Mr Elliot has said that many of its customers think the economy is actually in recession, which is leading to investment being stalled by companies taking too long to adjust to new hurdle rates of return with low interest rates.
If companies would just reduce their expectations of returns then confidence and investment may return. But in my opinion Boards and management don’t like reducing expectations, they don’t want to disappoint shareholders and it could even lead to falling share prices for listed businesses.
The AFR revealed that ANZ’s assumed cost of capital is around 10%, but lower funding costs have pushed the number lower to around 8%.
This environment is causing households to think they have less discretionary income. That’s certainly a feeling that’s justified with wage growth very low in Australia.
However, ANZ is trying to do its bit to get the economy moving again by increasing its mortgage lending volumes again by moving back towards the “grey line” of what a responsible loan is after the Royal Commission period.
What About ASX Shares?
Retail shares are reporting diverging performance. For example, JB Hi-Fi (ASX: JBH) has reported more sales growth in its September 2019 quarter whereas Nick Scali (ASX: NCK) is seeing lower sales.
It’s an interesting time, there are some segments of the economy that are still doing well but so far the tax cuts don’t appear to be having as a good effect as hoped. We’ll see how the other discretionary shares perform over the next few months.
That’s why I would rather buy the reliable shares in the free report below instead.
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