An Economic Perspective – Are Australian streets still paved in gold?

by Alexander Beard, on Apr 24, 2018 9:33:10 AM

The Australian economy has experienced between 2-3% growth for the last few years. Growth in consumer spending and public investment certainly helped, but soft housing and business investment and a large detraction in net exports weighed on growth. No recession on the radar although growth is seen to be below potential, certainly when compared with other major developed countries.

The Issues

Housing construction growth has faded.

House price averages on the way down, although moreso in Sydney and Melbourne.

Consumer spending is constraining given low wages growth, underemployment and slowing wealth gains.

Mining investment is still falling.

The Australian dollar continues to show strength and threatens growth in trade-exposed sectors like tourism, agriculture and manufacturing.

Inflation is too low, which in turn affects wages growth.

Political stalemate with the Lower House Government unable to pass it’s agenda through the Upper House.

All Doom and Gloom?

In a word: NO!

The drag from falling mining investment is nearly over.

Non-mining investment continues to grow.

Public investment is rising strongly.

Net exports are likely to add to growth as the completion of resources projects and strong global demand boosts resources export volumes and services sectors like tourism and higher education remain strong.

Profits for Listed companies are rising.

Paving in Gold

Continuing growth should provide a reasonable backdrop for Australian growth assets, translating to improvements in Australian equity markets.

Earnings from Bank deposits will remain comparatively poor for investors for some time and there’s plenty of alternatives that provide good growth and income yields. Investing in Global assets due to their relative outperformance is one such alternative.

Downside for the $A remains a risk. Interest rates in Australia are on hold, probably for at least the remainder of the year and the US Fed Reserve set to raise rates at least 4 times in the year, the interest rate gap between Australia and the US will become negative. With an anticipated fall in the Australian dollar. Another reason to maintain exposure to global equities, but on an unhedged basis.

While the Australian economy is seen to be simply treading water, there are still many opportunities to create, sustain, and protect wealth. Having an appropriately created Plan is always important, but even moreso when opportunities for improving personal wealth become less abundant. Our local office in Australia would be delighted to examine these opportunities with you.

Dave Stone
Managing Director - Australia

Topics:AustraliaBusinessEconomyInvestmentsMarket Commentary