We know that mining capital investment will at long last start to fall in 2014, which will likely see a period of slightly higher unemployment as engineers and contractors seek new ventures.
This has led many to believe that Australia is heading for a recession.
However, here are 7 reasons to be optimistic about 2014.
1. Exports are soaring
2. The lower dollar is helping
Another of the great fears was that commodity prices would collapse from their tremendous peak.
On the face of it, commodity prices have struggled in 2013 – the index fell by 4% in 2013 in the Reserve Bank’s chart above, which is in SDR terms (a reserve currency). However, the good news is that since the RBA’s rate cuts (and jawboning) have brought the dollar down nicely by some 15%, in Aussie dollar terms the commodity prices index increased by some 11.7% in the past twelve months.
3. Rising share prices
The lower dollar will help our share markets too, and we’ve already had an outstanding run. The high dollar has stymied returns a little to date as it has discouraged foreign investors, but this won’t be such a constraint in 2014, and thus almost everyone is seemingly forecasting gains in the market this year.
Forecasting share markets is a fool’s errand, but 10% gains next year might be a reasonable guess (probably with a sharp correction somewhere along the line) lifting Australian household wealth even higher than it already is.
4. Rising house prices
Unusually, 2014 is the first time in years that no credible forecaster is suggesting that house prices will fall next year. AMP forecast 8% growth nationwide. Others suggest 10%, and some closer to 5%. But it’s quite unusual that nobody is forecasting falling prices in Australia.
However, this plays out it has been a remarkable about face from 2012 when bearish commentators were talking about thousands being bankrupted by an unprecedented property bust. I suppose they could have been more wrong, but it’s hard to imagine how – Sydney dwelling prices are up almost 20% since the trough, with prices rebounding everywhere else as well (not very much in the regions, it must be said).
It will be interesting to see how far dwelling prices are allowed to run before the Reserve Bank pulls a lever.
5. Retail sales to rebound
Low interest rates and higher house prices will lead to an increase in consumer confidence and a rebound in retail sales. It’s likely already underway, with signs of life in the ABS retail figures in recent months. Households are benefiting from much lower mortgage repayments and the savings will find their way into the shops in 2014, stimulating the economy further.
6. Housing construction to take off
Slowly but surely dwelling construction will start to take off, following a very large increase in building approvals over the past 18 months.