This is the best global backdrop for Australia that has been seen for many years with indicators of world economic growth continuing to show promising momentum – global output growth is now running above its 3.5% long-term trend for the first time since mid-2005.
Industrial output’s best leading indicator, New Orders, is also rising solidly across a range of advanced and emerging market economies. Global industrial production grew solidly into the latter part of the year at around 3.75% yoy supported by a sizeable lift in world trade in the 3rd quarter.
There are always risks ahead though and 2018 will be no exception. It almost seems like the norm now but more Eurozone political turmoil lies ahead – this time with elections in Italy. Trying to speculate on Italian elections though has proven to be a road to nowhere! Perhaps the greatest economic threat though remains a hawkish US Fed – being too quick to cut off their support for economic growth by lifting rates or winding back asset purchases too aggressively. The potential for military conflict, particularly in North Korea, remains of great concern however, so far, it has had little effect on global growth or markets.
To the upside though is a very benign inflationary outlook across the world’s major economies – leading to little risk of central bank intervention. Likewise, commodity markets look well supplied and unlikely to cause any shocks.
Despite the global backdrop, the Australian domestic market is showing increasing signs of concern in two main areas – House prices and wages growth. Recent strong employment outcomes have enabled the RBA to maintain their belief wages/inflation will eventually turn up – it remains to be seen how strong, if at all, that upturn will be. The RBA’s focus on addressing concerns about household balance sheets amidst rising housing prices were ultimately addressed through tighter macro-prudential measures and the momentum in house prices is now clearly slowing – the question now is whether that slowdown will accelerate into 2018.
This publication is produced by the MLC Investment Policy Team and issued by MLC Wealth Management Ltd and its related companies and entities for the intended informational use by financial advisers. Whilst due care has been taken in preparing this report, Australian National Consulting, ANC Wealth and MLC does not warrant or represent that the information, opinions or conclusions contained in this report are accurate, reliable, complete or current. This report is general information only and has been prepared without taking into account an investor’s individual objectives, financial situation or needs. The report should not be taken to contain securities advice or recommendations. Past performance is no indication of future performance.