What the year has in store
Were we right in our projections?
WELCOME to what we call our annual moment of Truth And Dare. This is the 12th year of our Moneysaver HQ tradition, where we start every year by looking into our crystal ball and forecasting what may happen over the next 12 months.
At the same time it’s our moment of truth where we assess last year’s forecast and either revel in the glory of getting it right or suffer the embarrassment of being wrong.
The sections in italics are what we predicted this time last year for 2017. Even though we have the privilege of adjusting our views through this weekly section, it’s important we hold ourselves accountable on an annual basis … it’s good (or embarrassing) for the soul.
ECONOMY
Aussie dollar to be in the US60s as the American dollar rises
Commodity prices should be able to rise further
Steady year of economic growth of around 2.5-3 per cent
Maybe one or two official interest rate hikes
Unemployment staying below 6 per cent.
Our predictions for the economy weren’t too bad. Another strong year for the Australian economy as it continues its 26 consecutive years of positive growth and will finish around 2.5 per cent.
The dollar stayed high mainly because of continued strong commodity prices. No official interest rate hikes this year and unemployment did stay below 6 per cent.
For the year ahead, it’s likely the “Goldilocks” economy will continue … not too hot and not too cold. We expect economic growth to improve a little to around the 3 per cent mark or even a touch higher. Big infrastructure spending will fuel jobs growth and put money in consumers’ pockets while unemployment will stay around the 5.5 per cent level.
If there are any official interest rises it won’t be until the second half of the year and monthly trade surpluses will be a regular occurrence.
Because of the trade surpluses and solid commodity prices, the Aussie dollar will remain above US70c.
SHARES
It’s all about Trump President-elect promised a lot in his campaign and a lot of it will be good for American business and the economy
Share market will continue on its record run
If Trump does not deliver the whiplash effect by markets could be severe
Yes indeed, it was all about Trump as far as the share market in the US is concerned. Love him or hate him, the US economy is strong, corporate profits are improving and the tax cut legislation is looking promising. He’s not exactly “making America great again” but she is looking a lot better.
As a result, the US share market has been on a recordbreaking run while Australia is finishing at 9-10 year highs. The All Ordinaries hit a low of 5635 points at one stage during the year but finished on its highs at over 6100.
Overall, our share market predictions for 2017 were pretty well spot-on.
As for 2018, history tells us the share boom can’t possibly continue. In the US it’s now the second longest bull market (started in March 2009) in history without a 20 per cent pull back … and the question is how long it can go for now.
Some experts point to the fact previous bull runs in the US have produced annual returns of 15 per cent whereas this one is 7.6 per cent … the rationale is this bull is more moderate.
US tax cuts look set to be delivered in 2018 which should underpin good corporate profits, happy consumers and rising share values.
While Australia is influenced by US share market sentiment, but not mirrored, our unique dependence on commodity prices and Chinese growth add additional drivers.
A strengthening domestic economy, solid commodity prices and stable Chinese economic growth, mean local shares should have a solid year.
RESIDENTIAL PROPERTY
Cost of money is set to change. Big increase in new properties coming to market will tip the demand and supply balance
The slowdown in property prices will continue for Sydney and Melbourne while Brisbane will take a bit of a hit as well
Darwin and Perth property declines look to be bottoming out while Adelaide, Canberra and Hobart will stay positive but flat
Interest rates did not rise but the flood of new developments certainly tipped market balance away from sellers to buyers. The crackdown on investors has added to the change in cycle.
The residential property markets in Sydney and Brisbane are deflating while price growth in Melbourne has certainly slowed. Hobart has been the standout performer.
So the 2017 property outlook went pretty well according to plan. Remember, property cycles are slower to change than shares or commodities, so once a trend starts it usually continues for an extended period. And while annual returns are a fair indicator, the more recent quarterly figures can be more revealing.
For example, for the year ended September, Sydney residential property values were up 9.4 per cent which appears pretty good. But in the September quarter, values actually dropped 1.4 per cent.
We expect Sydney residential property values to actually fall in 2018 … but not by much. Melbourne growth will slow while Darwin, Perth and Adelaide will be flat … but Hobart will stay the standout.