What does the future hold for your finances?
MANY things of economic concern in 2016 did not happen:
- the global economy did not have plunging growth and deflation;
- the US Fed did not raise interest rates;
- commodity prices did not continue to crash;
- the Brexit vote did not plunge the world into a growth slump;
- the election of Donald Trump did not cause a share market crash;
- China did not hard land (again);
- Europe did not break apart;
- tensions in the South China Sea did not bubble over into war; and,
- Australia's property market did not collapse.
What actually happened was the global economy continued to muddle along at about 3% growth.
Concerns over deflation faded as commodity prices bottomed, spare capacity was gradually being used up and the policy focus shifted from monetary to fiscal stimulus.
An upswing in industrial commodity prices surprised many and was driven by a combination of better-than-feared demand and supply cuts.
The Brexit vote, the US election, the Australian election and some say the Italian referendum highlighted to varying degrees the rising support of populist decisions.
While growth fears and politics saw the US Fed scale back its planned interest rate hikes, central banks in Europe and Japan remained in easing mode, as did the People's Bank of China during much of the year.
Low inflation saw more rate cuts in Australia and growth weakened in the second half of the year. Meanwhile, the Sydney and Melbourne housing markets are at risk of oversupply.
What does all this mean for the year ahead? 2017 is likely to have another year of okay and maybe even slightly higher global growth, higher inflation, higher bond yields after a pause, and divergent monetary conditions as the US Fed tightens but other countries stay in easy monetary policy.
Main things to keep an eye on in 2017:
- US economic policy under President Trump - in particular whether the focus is on fiscal stimulus and deregulation as opposed to starting a trade war with China.
- How aggressively the Fed raises interest rates - faster inflation could speed it up, putting more upwards pressure on the US dollar.
- A rapid rise in bond yields - this would be bad for shares and growth assets but a gradual rise would be okay.
- Elections in the Netherlands, France, Germany and maybe Italy, which could reignite Eurozone break-up fears if anti- Euro populists win. However this is thought to be unlikely.
- Whether China continues to avoid a hard landing in its slowdown phase.
- Whether non-mining investment (housing activity, retail, resource export) picks up in Australia - a failure to do so could see aggressive RBA easing - and how a surge in apartment supply impacts property prices.
- And, of course, the effects of any geopolitical flare-ups, such as the South China Sea.
With all these factors playing on the global stage, it is a good idea to stay in touch with your financial adviser and make sure your investments are suitable.
For more Information call Maher Digby Securities Pty Ltd Ph: 07 5441 1266 or go to www.maherdigby.com.au This document was prepared without taking into account any person's particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such.
Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements and analysis contained in this document, all of which are intended to be of a general nature. Investors should consider the appropriateness of this information in regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor.