Up, down but still forward

Our economy may seem slow but all things considered, is doing pretty well

THE start of any financial year is a time to step back from the daily tsunami of economic and investment data and assess the big-picture performance.

It’s halftime in your 12-month financial strategy and a good opportunity to regroup.

As usual, the past six months has had its fair share of political uncertainty (Donald Trump in the US, threats from North Korea, unexpected election outcomes in Britain and France), big drops in oil and iron ore prices and stuttering economic growth in Australia.

But the big picture shows we are travelling well financially and economically. Here’s our mid-year investment review.

ECONOMY

economy isn’t exactly roaring but it does seem to be stable … and we broke the world record for the most consecutive years of positive growth.

Growth is stumbling along at 1.7 per cent, but in the past six months was affected by a raft of elections, here and overseas, and bad weather that hit exports and consumer confidence hard.

What gives us confidence that momentum will accelerate over the next six months is business confidence is at nine-year highs and good jobs growth has pushed unemployment down to a four-year low of 5.5 per cent.

Inflation isn’t a problem at 1.7 per cent, but wage growth remains subdued at 2 per cent.

The Aussie dollar is up 5 per cent against the US currency. which is interesting against a mixed result in performance of commodity prices. Illustration: Terry Pontikos

Australia is seen globally as a strong hedge against commodity prices and the performance of our key trading partner, China.

Oil, gold and sugar prices have dropped significantly while base metal, beef and coal prices have risen strongly. Interestingly iron ore prices are 2 per cent ahead as most of the big falls were the end of 2016

SHARE MARKETS

Over the past six months the share market’s bellwether, the All Ordinaries index, is up just over 1 per cent and among the worst performing in the world … in line with most other commodity-based markets.

But when you factor in record dividend payouts, share returns are a much healthier 12.7 per cent. That’s a pretty good result.

In fact, bonds, shares and property have all risen in value for the fourth consecutive year.

However, share performance has been inconsistent. Share values of the major banks have taken a hit from new taxes, exposure to a softening property market and a limping economy.

As have energy producers from the falling global oil price coming from the production war between major oil producing countries.

Retailers have also been under pressure from low inflation, low wage growth and fears the entry of Amazon will smash local companies. SUPERANNUATION

With shares, property and bonds all making gains, super funds are looking good with the median balanced fund returning 10.3 per cent for the financial year to May. The five-year average is just over 10 per cent. With super such a big part of the average Australian’s wealth, a double digit average five-year return is a terrific result. “Global shares have been the big driver of returns over the past year, supported by a fall in the Australian dollar through early 2017,” said SuperRatings chairman Jeff Bresnahan. “Market momentum has been strong, and in the US and Europe we are still seeing markets pushing to record highs.”

But there is some concern about whether this can be maintained.

Just a couple of weeks ago we had the biggest one-day share-market fall in seven months on the back of a major slide in the oil price. Plus a slowing property market could also affect super fund performance.

PROPERTY

There’s no doubt the sting is coming out of the property boom in Sydney and Melbourne as regulatory authorities make it more expensive and more difficult for investors.

Auction clearance rates have fallen from the mid-80 per cents to the low 70s.

But despite constant doomsday warnings from overseas, this property slowdown doesn’t look as though it’s heading for a crash.

Why? Well part of the answer came from last week’s Census figures … we’ve seriously underestimated our population growth.

Strong immigration means our population grew by 37,000 more people than expected, with most of those moving to Melbourne and Sydney ... and wanting a roof over their heads.

FINANCIAL CONTROL

SIX-STEP DEBT DIET

1. Face reality 4. Stick to a budget

Many people ignore their debt Balance your family budget problems until it’s too late. The and develop a debt-reduction worst thing you can do is plan. The fastest way to pay off ignore it, hoping things will what you owe is to make extra work out. The sooner you act, repayments. the better off you will be. 5. Don’t fall in to the

2. Ask for help minimum trap

If you’re in trouble, talk about The monthly credit card bill it. Credit card companies and looks horrific, but you take financial institutions will be comfort in the much smaller much more lenient if they minimum balance owed. Big know you’re trying to tackle it. mistake. It will take years to

3. Control your spending eliminate debts if you only For the next month write down make minimum repayments. everything you spend, then 6. Pay off your most examine it. You’ll be amazed – expensive debt first and maybe a little horrified – at It’s common sense, but pay off where your money has gone, the debt with the highest but you’ll think twice in future. interest rate first.