Earnings Growth Forecasts To Be Lowered

Citi equity strategist Richard Schellbach told the Australian that new projections were forthcoming as analysts were beginning to question theearnings growth forecasts due to the world’s economic situation. Just as the global situation erodes, so does the confidence in Australia’s economic recovery.

Schellbach said “What the price in the market is telling us – the fact the ASX 200 is down at 4300 – is that it expects that number soon to not be 26% growth for 2011, it expects it to be maybe only 5%”.

These comments by Mr. Schellbach came after a number of local companies like Toll Holdings, Primary Health Care, Virgin Australia and Sonic Healthcare issued profit warnings.

Obviously the profit warnings caused a significan’t drop inearnings growth forecasts. The problem is that when the forecasts had first come out for 2010- 2011, the forecasters were being overly optimistic about the recovery of the Australian economy. Worldwide forecasters did not even hope for an economic recovery on any scale whatsoever like the growth forecasts that Australians forecasters predicted. Alas, as the world economy goes, so does the Australian economy. Likely, the 5%earnings growth forecasts are much more realistic and attainable for Australia.

No one, of course, likes to be the prophet of doom, but the harsh reality of Mr. Schellbach’s statement brings to light the economic circumstances that the Australian economy and indeed the world is in. The U.S. and the European Union have each tried to make the problems go away by throwing money at it in the form of bailouts, but these two areas are still in the throes of a deep recession. It rather leaves the Australian government with the question as to what is to be done.

Mr. Schellbach’s statement also leaves individual Australians in a quandary. What can be done to preserve their money as well as to ensure they do not fall farther behind? Many of these people are now in the process of looking at the various savings accounts as to their performance and keeping their money safe, opting for more stable albeit lower returns. Of course, this rush away from stock investments will most probably hurt the market even more.

There is however, at least some help forthcoming for Australia’s struggling lower income workers. Last week it was announced by Australia’s newly founded independent workplace relations-tribunal that it had been agreed to raise minimum wages by 4.8% by July 1st. It is hardly a windfall, but perhaps it will be a little relief.