FPC001B Economic and Legal Context for Financial Planning - Analysis Assessment

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Question 1

1. Labour market conditions

  1. For the time being, Australia's main labour market measures still lead to sound economic health, amid concerns about slowing levels of GDP growth, poor domestic investment, and low income growth. The unemployment rate has decreased steadily over the past four years, and has kept stable since the past year.
  2. The restoration of the labour markets in Sydney and Melbourne will reduce the likelihood of adverse equity for properties purchased during the crisis as housing prices reach a new peak. Therefore, Jane should invest in her cash somewhere else. 
  3. Economic activities, labour market conditions and employment rates were influenced by monetary and fiscal policy actions. So the change in monetary and fiscal policy caused Jane to rethink before making use of any investment option.

2. Interest rate environment

  1. Australia has encountered an era of historic low interest rates and there is a strong possibility that interest rates will stay low for a significant period. The low interest rate environment is contributing to a net interest income decline for banks, which could lead to a profit decline of up to 15%.
  2. In order to buy property, interest rate matters. In recent times, Australia has face the lowest interest rate due to global pandemic of COVID 19. So, when interest rate is low then to invest in property is a good option. So, Jane has to buy property.
  3. In Australia, fiscal policy involves employing interest rates to impact cumulative economic demand, employment opportunities and inflation. The increase in interest rates due to government borrowing draws foreign capital in the case of a fiscal expansion. The influence of a fiscal policy is to maximize property investment demand.

3. Global economic influences on the Australian economy

  1. The COVID-19 pandemic is shaping the forecast for both the Australian and global economies. The required restrictions on social distance and other protection initiatives in order to manage the virus have led to a major downturn of economic activity, but economic situation will strengthen as the pandemic is managed and protection measures are eased.
  2. Throughout Australia, the economy is rising at a fair speed, the stock market is near to all-time records, unemployment is stable, and interest rates remain weak. The increases in the cost of borrowing comes at a time when the housing market is weakening, especially in Sydney and Melbourne. So it is time when Jane should invest in the stock market.
  3. Fiscal and monetary policy is a crucial reason for ensuring steady and sustainable inflation, employment and economic development. When the economy overheats, central banks increase interest rates and take other stimulative steps to slow it down, which can prohibit investment in real estate and negatively affect property prices.

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