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(originally published to Helium writing site, now gone; written in 2009 but still relevant)

The downturn in the world economy has affected just about everyone. Here in Queensland, Australia, economic conditions have deteriorated but not to the extent seen in the US, Europe, and some Asian countries. This is probably because the state’s economic fundamentals are sound. However, being a small player, we are certainly not immune from what is happening in the major economies.

Initially, we thought we would ride out the economic slump and not go into recession ourselves. This forecast has now been revised, and Queensland and Australia may be heading toward a mild recession (update – it didn’t happen). Gross domestic product was steady in September quarter 2008 and fell 0.1% in December quarter. Queensland state final demand grew 0.6% and 0.3% respectively in these quarters. These figures are considerably better than in many countries. Consumer price growth is steady. Housing prices have only fallen slightly. The drought has broken. We haven’t had banking and insurance company collapses. However, unemployment is up and job advertisements are down.

The state and national economies are being boosted by monetary and fiscal measures. Australia’s Reserve Bank has reduced the cash rate from 7.25% to 3.25% since September 2008. On the fiscal side, cash hand-outs of $1,400 to pensioners in November 2008, and $900 to single income families as well as to most other taxpayers and for each child in March and April 2009, will boost the economy.

As in any downturn, there are winners and losers. With the slump in export markets to Asia, Queensland’s mining towns are doing it tough. More than 10,000 mining jobs have been lost in Australia since mid 2008, with perhaps a quarter to a third of these are in Queensland. Further losses are expected. Manufacturing and tourism are also suffering employment cuts. The retail industry varies. Public sector jobs can be attractive in bad times. A public servant with a mortgage will most likely be better off now than before the downturn. Job applications in government sectors such as police, health, fire and ambulance have increased significantly as people seek safe jobs.

There are a number of things people can do to help get through the recession. An important one is to pay off credit cards and to keep the balances as low as possible. Shop around for better deals on credit cards. Similarly, people with a mortgage should aim to pay it off as soon as they can. It’s amazing how much you can save by making half your monthly repayment each fortnight, or by paying off extra amounts from time to time. With low interest rates, now is the time to reduce that loan. Also, make sure your home loan offers good value.

Review your superannuation. Fund values have plummeted due to stock market and property price falls, and people now find themselves having to work another few years or even coming out of retirement. Some sources say to consider cash rather than super. Cash won’t fall in value like super can, but it won’t rise like super probably will when the economy picks up again. If you do prefer cash, good rates can still be obtained on a term deposit. It can be a good idea to build up a cash reserve in case you lose your job. And gold is always a good investment.

Look at your investment portfolio. In a downturn, the best companies to invest in are the so-called recession proof businesses such as those whose products or services are regarded as necessities or whose demand doesn’t fall off. These are usually food and drink manufacturers, including alcohol, as well as those making basic clothing, household goods, and cosmetics. Web businesses should see continued strong growth.

Reduce discretionary expenditure. In other words, don’t buy things you don’t have to buy. Eat out less. Keep the old car another year or two. Make do with your 20 or 30 changes of clothes. Cut back on movies and CDs. Buy books instead; these take longer to get through than a film and are often cheaper, especially if second-hand. Buying music online can be cheaper and easier than purchasing CDs. One of the anomalies of a recession is that you will want to spend less while the government wants you to spend more.

Consider your employment opportunities. Is the company you work for recession proof? There are various sectors of the economy where your job will be safer than other areas. Health care is always in high demand and won’t suffer because of a weak economy, especially with an aging population. Education services will continue their strong growth, with more people studying and for longer. In fact, a recession may be a good time to return to education and learn new skills. The need for police and other providers of emergency services will continue to grow. The energy industry will thrive, including alternative energy sources.

In the end, how well you cope with a recession is largely up to you. Review your expenditure, loans, credit cards, job, investments, and superannuation, and do what is best for you. When the economy picks up, which it will, keep reviewing these things. Remember that as a general rule, the longer the boom times last, the bigger the eventual downturn. Plan accordingly.

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