There is a lot of noise out there in the world today – especially where the economy and global markets are concerned. Whether it’s talk of Trump, coronavirus, the bushfires, global trade tensions, the escalating situation in Iran – the list goes on.
But the question to ask ourselves is: is it just that? Noise? Or is it a real threat we need to be concerned about?
Shane Oliver, Chief Economist and Head of Investment Strategy at AMP, shared his thoughts on this topic at our recent economic event.
The general consensus was that while these events will certainly have an economic impact in the short-term, it should stable out in the medium-to-long term.
Economic trends for 2020
So, what are some of the things we need to watch that will likely impact the economic and investment outlook over the next 12 months?
- Coronarvirus is predicted to impact global growth in the March quarter, followed by a rebound in the June quarter (short of a pandemic occurring). Locally, we can expect to see a dip in tourism, the commodities market and the education sector as a result of the virus and travel plans being halted in the immediate-to-short-term.
- Inflation is below target in most countries and global monetary policy will remain easy.
- We should expect to see further fiscal stimulus measures on a global scale.
- The RBA is predicted to ease interest rates further, taking the cash rate to 0.25%
- Shares remain vulnerable in the short-term, but should provide okay returns over the next 6-12 months.
- The US economy remains solid, but there is potential for the upcoming election to have a flow-on effect to global markets.
- Chinese authorities are working to stimulate the local economy, so once the virus passes, they should return to growth.
While we can expect periods of volatility over the next 12 months, a recession in Australia is unlikely (short of a pandemic occurring), says Shane, but growth is likely to remain constrained. There are a couple of reasons for this:
- Rate cuts and tax cuts help to boost spending.
- Property prices will start to rise over the next 6-12 months.
- Infrastructure spending is booming.
- The low Aussie dollar is helping to stimulate growth.
- The drag from falling mining investment is over.
- The current account is in surplus.
- There is scope for extra fiscal stimulus.
- Population growth remains strong.
- Cyclical spending never boomed.
He remains optimistic about the future, so long as we try to “turn down the noise” and focus on what matters.