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Five reasons not to be too bearish on the Australian Economy

Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital Investors began the year with a list of lists.

Clearly he is optimistic for the world economy as well as our local economy.

Here are his five reasons not to be too bearish on Australia:

  1. Trade is likely to steadily boost growth as resources export volumes pick up in the years ahead (after all the investment and helped by a stronger global economy). Exports to China are growing 55% year on year.
  2. Slowing mining investment will allow a more balanced economy after the unbalanced “two speed economy“ years.
  3. Interest rates are at generational lows.
  4. The falling $A is providing a boost to growth.
  5. A housing construction recovery is underway with, eg building approvals around past cyclical highs.

Source: Bloomberg, AMP Capita

He continues by saying:

There are signs of life in consumer spending with retail sales looking stronger, consumer confidence off its lows, household wealth up and the savings rate very high at around 11% (meaning it has scope to fall a bit to provide a boost to consumer spending growth).

Dr. Oliver also warns about the Key Risks for 2014

  1. Too much exuberance. After the strong run in share markets of the last two years, short-term investor confidence is at levels often associated with corrections.
  2. Bond yields could surge higher and destabilise growth assets. This could occur in response to stronger than expected growth and/or inflation and/or an accelerated switch out of bond investments by investors.
  3. The Eurozone crisis could return as growth there remains low and with bank stress tests due later in the year.
  4. China’s growth stabilisation could prove fleeting.
  5. The pick-up in non-mining sector growth in Australia may not be strong enough to offset the slowdown in mining investment and budget cutbacks in the May budget.
  6. Factor X – something can always come from left field.

[post_ender]



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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