SCHOOLS BACK AND THE HOLIDAYS ARE NOW OFFICIALLY OVER AND 2020 HAS KICKED INTO FIRST GEAR. BELOW WE PROVIDE A SUMMARY OF ECONOMIC PREDICTIONS AND POINTS OF INTEREST FOR 2020.
2019 was a resilient year for markets despite a slowing in global growth. Equity markets (share-markets), including the Australian market, have returned close to 20% in AUD terms, led by the Nasdaq which has risen more than 25%. Australian bonds are also approaching double digit returns. With strong performance to finish off the year, it appeared that the year finished much different to how it started.
2020 has kicked off in full swing. The US Fed has turned from raising rates to cutting rates. The RBA has changed from saying the next move is up in rates to also cutting rates, and openly discussing the possibility of quantitative easing (QE). Bonds have rallied significantly as yields have fallen. Equity markets have set new highs with developed markets are outperforming emerging markets. The technology sector has been a standout and the $US dollar has been strong.
The Predictions
For Australia, our outlook remains optimistic and we expect economic growth (GDP) to pick up to 2.8% supported by infrastructure investment. This has been assisted by the recent policy announcement by Treasurer Frydenberg to provide tax breaks for foreign capital starting large infrastructure projects.
More monetary easing is to come from the RBA, but what form it takes is uncertain at this stage. Taking into account more recent events such as the catastrophic bush fires and government commitment to rebuilding, this should take away the need for the RBA to cut interest rates further. The governor of the RBA has been hoping that the government would step up its fiscal policy and bring infrastructure spending forward. The decision has now been made for them.
Credit Suisse believes global growth will be a sluggish 2.5% in 2020 with a mild recovery in industrial production. De-escalation of the trade war should reignite capital spending in the US and China, and Brexit should finally be put to bed. There is sentiment risk attached to the US election, particularly as the leading Democrat contender has strong views on regulating Wall Street and the breakup of big tech. Inflation is under control but may rise temporarily in the US. The Fed is unlikely to cut rates again and the US should produce GDP growth of 1.8%.
European growth is likely to be stalled at 1%, although resolution of the trade dispute will help exports.
Chinese growth will be a little lower in 2020 compared with 2019 at 5.9%, but still outstrips most of the rest of the world and will benefit from moderate stimulus. However, the recent Coronavirus outbreak continues to spread, and the death toll unfortunately continues to rise.
From a financial point of view, the Coronavirus has the potential to derail growth not only in China but across the globe.
The other key risks are lingering trade uncertainty surrounding the tariff negotiations, and upheaval in the Middle East and Hong Kong.
The major economic risk is probably higher than expected inflation, particularly in the USA, which would lead to tighter monetary policy. We still favour equities over bonds, and in developed markets have a preference for USA equities given superior growth prospects and a large technology sector that will benefit from better economic activity. Technology is also benefitting from long term trends in digitisation, automation and artificial intelligence.
Overall, we enter 2020 with a sense of optimism, like we did in 2019. Returns will be lower than 2019, as we deal with a plenitude of new challenges as a global community and as Australians. But nonetheless we see 2020 building on what was a stellar 2019.
2020 has kicked off in full swing. The US Fed has turned from raising rates to cutting rates. The RBA has changed from saying the next move is up in rates to also cutting rates, and openly discussing the possibility of quantitative easing (QE). Bonds have rallied significantly as yields have fallen. Equity markets have set new highs with developed markets are outperforming emerging markets. The technology sector has been a standout and the $US dollar has been strong.
The Predictions
For Australia, our outlook remains optimistic and we expect economic growth (GDP) to pick up to 2.8% supported by infrastructure investment. This has been assisted by the recent policy announcement by Treasurer Frydenberg to provide tax breaks for foreign capital starting large infrastructure projects.
More monetary easing is to come from the RBA, but what form it takes is uncertain at this stage. Taking into account more recent events such as the catastrophic bush fires and government commitment to rebuilding, this should take away the need for the RBA to cut interest rates further. The governor of the RBA has been hoping that the government would step up its fiscal policy and bring infrastructure spending forward. The decision has now been made for them.
Credit Suisse believes global growth will be a sluggish 2.5% in 2020 with a mild recovery in industrial production. De-escalation of the trade war should reignite capital spending in the US and China, and Brexit should finally be put to bed. There is sentiment risk attached to the US election, particularly as the leading Democrat contender has strong views on regulating Wall Street and the breakup of big tech. Inflation is under control but may rise temporarily in the US. The Fed is unlikely to cut rates again and the US should produce GDP growth of 1.8%.
European growth is likely to be stalled at 1%, although resolution of the trade dispute will help exports.
Chinese growth will be a little lower in 2020 compared with 2019 at 5.9%, but still outstrips most of the rest of the world and will benefit from moderate stimulus. However, the recent Coronavirus outbreak continues to spread, and the death toll unfortunately continues to rise.
From a financial point of view, the Coronavirus has the potential to derail growth not only in China but across the globe.
The other key risks are lingering trade uncertainty surrounding the tariff negotiations, and upheaval in the Middle East and Hong Kong.
The major economic risk is probably higher than expected inflation, particularly in the USA, which would lead to tighter monetary policy. We still favour equities over bonds, and in developed markets have a preference for USA equities given superior growth prospects and a large technology sector that will benefit from better economic activity. Technology is also benefitting from long term trends in digitisation, automation and artificial intelligence.
Overall, we enter 2020 with a sense of optimism, like we did in 2019. Returns will be lower than 2019, as we deal with a plenitude of new challenges as a global community and as Australians. But nonetheless we see 2020 building on what was a stellar 2019.
Terry Panigiris, Angie Menendez, Franciny Lima and CBD Corporate Financial Centre Pty Ltd t/a CBD Advisory are Authorised Representatives of Consultum Financial Advisers Pty Ltd ABN 65 006 373 995 | AFSL 230323 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.