The question on everyone's lips is “do we have an optimistic economy in 2013”? Wealth Management Director Rod Dickinson sees evidence of a more optimistic view for global growth, albeit from a very low base.
Notwithstanding this we are not completely out of the woods with significant global economic issues to be addressed this year and further into the future as well.
The 2nd half of calendar 2012 proved to be positive for many asset classes, such as property, shares and fixed interest. This was a great result for investors that were looking for better returns than those available from cash and term deposits as interest rates in Australia fell and banks became less reliant on term deposits for funding as global credit eased.
Globally (and more recently domestically) central banks have been very active in attempting to pump liquidity into economies as a means to kick start the economies that were still reeling from the effects of the GFC.
The effects have been as follows:
1. US housing prices look to have begun somewhat of a recovery. This has a very positive “wealth effect” on the psychology of consumers leading to more spending and job generation.
2. Credit has begun to flow through the system. Given more liquidity from governments, companies that have had very strong cash flows and solid balance sheets have been able to borrow funds at very attractive rates, generating good returns for their shareholders.
3. The US has been able to defer the so called “Fiscal Cliff” and there is general consensus that the two parties will be more conciliatory about policy in Obama’s 2nd term. The weaker USD has also helped their economy.
4. The Eurozone have made large steps in fixing the banking system and this backs up statements that they will do whatever is necessary to maintain the EU. Germany continues to benefit from a weak Euro with their exports remaining very competitive.
5. China appears to have avoided a hard landing, and in many respects holds the key to Australia’s fortunes. They have the levers to accelerate their economy but do not want to grow at a rate that might cause inflation to rise quickly again.
More? Click here to read some commentary by Shane Oliver.
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