Caution Costs: How GDP Figures Reflect a Darker Truth

Following dismal GDP and income statistics, we dig into the impact of investor caution and traditionalism on the Australian economy in this blog.

There seems to be a sentiment of caution invading the psyche of Australian investment with implications that extend much further than the startups and investors directly involved. From warnings to “be wary of accelerators” to reductions in government funding, and comparisons of the contemporary tech environment with the dotcom bubble, Australian startups are facing daunting messaging and increasingly intimidating business conditions.

It comes in stark contrast to record investment from overseas venture capital, which would seem to suggest that Australia was fertile ground for business – but strikes a chord with the traditionalist approach typically applied by Australian investors. To compound matters, a bleak economic outlook painted by disappointing GDP and income statistics revealed earlier this week seems to support the idea that now is the wrong time to take risks.

The Australian Bureau of Statistics confirmed lower than expected growth in Australia on Wednesday. Growth was lower than forecast at 2.7 percent rather than the expected 3.1 percent. Though government spin notes that these figures are only marginally worse than anticipated, and suggests that things are likely to improve as the new budget beds in, dissenting voices claim a failure of economic policy.

But though there seems to be a consensus on the solemn nature of the data, there have been very few voices proffering possible solutions. Reserve Bank interest rate cuts are being banked on by major global institutions like Deutsche Bank and Goldman Sachs, but as yet there has been a dearth of concrete responses by policy-makers. 

The prospect of just hanging on is unlikely to appease those invested in Australia’s future. Fortunately though, the private sector has the power to affect its own change by solidifying its commitment to startup investment. It’s yet another reminder that there needs to be a fundamental policy shift to help steer investors in the direction of high-growth industries.

Investment in Australia has long been centred around traditional industries such as mining, but despite positive price shifts in gold and oil, global pricing of other resources has diminished the sector’s positive impact on the GDP. It’s a hint that may lead to some investors shuffling their speculations, but traditionalists will lean towards bonds over high-risk, high-growth investments.

What’s missing is policy that minimises the risk of investments in the extraordinarily lucrative industries that have led US economic growth in recent years. Silicon Valley now represents US$138 billion of US GDP, a figure that would make it the world’s 56th biggest economy on its own. And small businesses are driving optimism in the US, proving that there is a need for enterprise to be complemented by startups in even the biggest global economy.

There have been important shifts where it concerns the policy that governs tech startups at home. Organisations like StartupAUS have demonstrated the potential of startups to generate growth at staggering rates, and changes like those taking place with the Employee Share Scheme show that policy-makers are listening. But many will ask, is it enough to make a difference?

Recent media coverage has felt cautionary and ponderous over the future of the tech industry in Australia, perhaps following the cues of policy-makers. But huge successes like Atlasssian point in a completely different direction. Entrepreneurs and VCs relentlessly reiterate their dedication to risk, but we can only lead the way when the groundwork is laid for followers.

Despite the doom and gloom forecasts some have made in the wake of the GDP figures, there’s still cause for faith in the Australian economy. More than two decades of growth show that we are more than capable of responding to warning signs. Foreign investment is proving the potency of startups, and innovation continues to be a strong suit for the nation.

Whether Canberra will listen is up for debate, but with slowing growth providing a clear cue we’re willing to bet they will be looking for solutions in the near future. The way we see it, that future depends on startups.