By Andrew Carswell

October 10, 2008 12:00am

ONE thing is certain from any global financial crisis - everyone will feel pain.

While those heavily invested in sharemarkets have already endured 12 months of distress, the effects on the wider community are only now starting to filter through.

However, with the International Monetary Fund now predicting that the developed world is likely to face recession next year, Australia cannot expect to escape unscathed.

So how will this global financial crisis affect ordinary Australians?

Here’s our guide on what to expect.

UnemploymentA clear distinction of any recessionary period is high unemployment.

Unemployment is already edging up, from 4.1per cent to 4.3 per cent, but leading financial analysts are tipping unemployment to rise to 5.5per cent before the end of next year.

While large corporations have already begun rounds of retrenchment, the biggest area of job losses will come from small business.

Up to 70 per cent of small businesses are scheduled to have a massive rise in their three-to-five year lending rates in 2009, which will be too much for many to bear, Fujitsu financial analyst Martin North said.

“The expectation is that unemployment will rise and rising unemployment will have a considerable impact on mortgage stress because people will find it quite difficult to essentially pay their mortgages,” he said.

SuperannuationNest eggs have already copped a thrashing from the downturn on global sharemarkets, affecting virtually every Australian.

The average balanced superannuation fund option lost 6 per cent in the year to June 30, while funds invested more heavily in shares have lost up to 30 per cent.

According to research house SuperRatings, super funds are taking more of a cautious approach during the current climate, leaving billions in cash instead of investing in shares.

“Everyone is sitting on cash, billions of dollars of cash pouring into the system,” SuperRatings managing director Jeff Bresnahan said.

Mr Bresnahan said those about to retire will no doubt receive a smaller nest egg compared to a year ago but would still be sitting on solid gains made in the past six years.

For those a long way off retirement, sit tight, there will be many more years of gains ahead to wipe away this year’s losses.

The dollarIn the eyes of international investors, the Aussie dollar has long been considered a risky venture. That is largely due to its significant exposure to resources and our extensive mining sector. In other words, when commodity prices fall, it drags down the value of the Aussie dollar. When the dollar drew within two cents of reaching parity with its US equivalent in July, it was mainly on the back of weakness in the US currency and increasing iron ore prices. But since commodity prices have fallen off a cliff in recent months, so has the Aussie dollar.

MortgagesOne advantage of such economic chaos is falling interest rates.

The Reserve Bank has already clipped its cash rate by 1.25 per cent this spring, with Australia’s major banks passing on 1.05 per cent to Australian borrowers.

Central banks in the US, UK, the EU, Sweden, Canada and Switzerland all move simultaneously this week to cut their cash rates by 0.50 per cent. And greater relief is on the way.

Economists predict the RBA’s cash rate to fall by at least 1.50 per cent in the coming months to help alleviate tightness in credit markets and inject some life into the housing industry.

So, assuming the banks pass on the majority of the RBA’s expected rate cuts into the future, the average mortgage rate now of 8.75 per cent could fall as low as 7 per cent in the next six months.

Imported goodsCourtesy of an extremely weak Aussie dollar, consumers are facing hefty increases in the price of imported goods.

The price of electronic items, TVs, computers, whitegoods, clothes and imported foods will shoot up in the coming weeks, Commsec economist Savanth Sebastian said.

“One of the advisers here was saying this morning he had been haggling for this new Samsung model television coming out. I’ve been telling him ‘Mate, buy it now otherwise it will probably go up $200 next month’,” he said.

GroceriesLocally produced grocery items will not be greatly affected by the financial turmoil. If anything, prices may actually come down due to falling oil prices bringing transport costs down.

Imported food items will increase however, due to the weakness of the Aussie dollar.

“Don’t expect a significant change in grocery prices because of the oil prices coming off, which will allow retailers like Woolworths to pass on some of those savings on transport to consumers,” Mr Sebastian said.

PetrolMotorists have been doing it tough all year thanks to global oil prices shooting above $US100 a barrel and even hitting an astronomical $US147 in May.

But despite oil prices falling 40 per cent from that high in recent months to about $US88 a barrel, motorists have had no relief from excessive prices at the pump.

The weakness of the dollar is to blame. While ever the Aussie dollar is weak, the price petrol retailers pay for refined fuel remains high, despite what oil prices do.

With the dollar near record low, the big danger for motorists is if oil prices surge back towards their highs, which would guarantee at least $2 a litre at the pump.

TravelTravellers heading overseas be warned - your hard-earned savings will not stretch as far as they would have done three months ago. The Aussie dollar has lost significant value against all major currencies around the globe, particularly the US dollar, the pound, the euro and the yen.

Merrill Lynch analysts believe the low dollar will significantly slow the number of Australians heading overseas. But, conversely, the struggling domestic tourism scene will be booming with Australian travellers turning their attention to their own backyard.

The number of international visitors may pick up due to our low currency, but that’s not guaranteed due to global financial constraints.

Real estatePerhaps another positive to flow from a period of financial turmoil is upward pressure on real estate prices.

Interest rates are declining rapidly, tempting people into a real estate market.

The problem is, nobody is building new homes at the moment, with the entire housing construction industry virtually in slow mode.

A boom is on the horizon, some analysts are predicting.

BanksAustralia’s major four banks are among the safest in the world, among a very select group with a credit rating of AA.

There is little, if any, likelihood of one collapsing and exposure to the dire US housing sector is minimal.

The frightening reality is if a major bank did fall over, customers currently have no insurance to secure their deposits, unlike other Western countries.

The Rudd Federal Government has proposed a deposit insurance scheme to insure the first $20,000 of deposits in authorised deposit-taking institutions.

If your bank is bought by another bank, there would be no changes to your mortgage or savings and deposit accounts. It would simply switch hands.

SharesFinancial analysts believe the Australian sharemarket will continue its downward trend in the coming months, perhaps not as sharp as recent weeks.

In bear markets, investors traditionally turn to defensive stocks.

Everyone needs to eat, therefore food retailers and consumer staples are considered a defensive investment choice, as with the health care sector and energy sector - more things that none of us can do without.

This article was derived from news.com.au/dailytelegraph/story/0,22049,24471131-5015795,00.html