There seems to be a continuing conveyor belt of economic concerns confronting us in the media.
Yet despite all the overseas problems, Australia’s economy is performing well and is the envy of most other developed nations.
However there is no doubt that our economic future is linked to what’s happening overseas, so it was interesting to hear what Mohamed El-Erian CEO of global investment management firm PIMCO had to say when he took to the airwaves on Bloomberg recently and laid out his list of the four major risks facing the global economy:
The 4 big economic risks to the world economy
- The looming fiscal cliff – in which automatic tax increases and spending cuts are set to take effect at the first of the year in the U.S.
- The continuing sovereign debt crisis in Europe.
- Geopolitical risk in the Middle East and elsewhere.
- The economic slowdown and pending political transition in China.
While the first two items on this list should be within the power of politicians to solve; so far they have engaged in a game of “kick the pressing problems down the road.” However, sooner or later – and likely sooner rather than later – that road will end. Only time will tell if theSE overseas politicians will solve the problems before they hit a dead end.
The last two risks are trickier.
Geopolitical risks are always unpredictable, particularly in the highly combustible Middle East.
And, China, that’s another wildcard. The country’s economy is clearly slowing down, albeit from a very high rate compared to the standards we are used to in Australia. The upcoming once-in-a-decade political transition to a new government could cause the slow down to continue a little longer.
What about Australia?
Interestingly despite all the overseas troubles, the Australian economy is performing well, in part buoyed by our resources boom.
However despite our economic fundamentals being sound and interest rates being low, many Australians are a little unnerved with the overseas economic instability and are being prudent. Rather than taking on the commitments of a new or larger house, they are paying off our debts and saving their pennies.
This is one of the reasons our property markets have been flat over the last few years, but the latest stats from RPData show that capital city home values in Australia rose by 1.6 per cent over the last three months.
In fact seven of Australia’s eight capital cities have registered capital gains over the last three months with the exception being Adelaide.
In time as rents keep increasing and interest rates reduce further, first home buyers will return to the market as will investors and the cycle will move on.
I remember reading that King Solomon had an inscription in his ring that kept him humble in good times and confident in the bad times – THIS TOO SHALL PASS.
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