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What is New

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Oliver's Insights - Australian growth will be constrained - but here's nine reasons why recession is unlikely

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note attempts to put a bit of balance back into the debate about the outlook for the Australian economy which seems to have become quite gloomy lately. The key points are as follows:

  • Australian growth is likely to be weak over the next year or so and this will prompt further monetary easing and fiscal stimulus.
  • However, several positives suggest recession is unlikely: the current account deficit has collapsed; the $A helps stabilise the economy; the drag from falling mining investment is over; there is scope for extra fiscal stimulus; infrastructure spending is booming; there has been no sign of panic property selling; economic policy remains sensible; population growth remains strong; and the RBA can still do more.

 

Oliver's Insights - Australian growth will be constrained - but here's nine reasons why recession is Oliver's Insights - Australian growth will be constrained - but here's nine reasons why recession is (265 KB)

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Oliver's Insights - RBA cuts rates to a new record low – why? will it work? how low will rates go? and what does it mean for investors?

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at the Reserve Bank of Australia’s decision to cut the official cash rate by 0.25% to a new record low of 1.25%. The key points are as follows:

 

  • The RBA’s latest rate cut is aimed at heading off a further slowing in growth which would threaten higher unemployment and lower for longer inflation.
  • Cutting the inflation target would be a big mistake
  • More rate cuts are likely to be needed ultimately taking the cash rate to a low of 0.5% next year. Ideally this will be combined with more fiscal stimulus.
  • For investors it means low interest rates for even longer.

 

 

 

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Oliver's Insights - The trade war is back – what went wrong, what it means for share markets and Australia

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at the latest round of tariff increases announced by the US and China. The key points are as follows:

  • The trade war between the US and China has returned after talks to resolve their trade differences broke down.
  • Our base case remains that a deal will be reached to resolve the issues, but the risks to global growth are now higher (given the escalation in tariffs from the US) and share markets may need to fall further in the short term to remind both sides of the need for a deal.

 

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Oliver's Insights - The 2019 Australian Federal election and investors

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

With the Australian Federal election now called for May 18, the attached note takes a look at the impact of Federal elections on investment markets and the critical policy differences this time around of relevance to investors. The key points are as follows:

 

  • Australian elections tend to result in a period of uncertainty which have seen weak gains on average for shares followed by a bounce once it's out of the way.
  • With Labor promising higher taxes, larger government and more intervention in the economy the May election presents a starker choice than has been the case since the 1970s & so suggests greater uncertainty for investors than usual.
  • Labor's higher tax and regulation agenda may be a negative for Australian assets, but this could be partly offset in the short term by more targeted fiscal stimulus.
  • To return to decent wage gains requires a productivity enhancing reform agenda and much lower unemployment. This election is unlikely to deliver much on the former.

 

Oliver's Insights - The 2019 Australian Federal election and investors Oliver's Insights - The 2019 Australian Federal election and investors (283 KB)

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Oliver's Insights - The 2019-20 Australian Budget – the long-awaited surplus and the promise of more tax cuts ahead of the election

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note takes a look at the 2019-20 Australian Budget. The key points are as follows:

 

  • The 2019-20 Budget "delivers" the long-awaited surplus and increased fiscal stimulus mainly via tax cuts/offsets.
  • The main risk is that the revenue boost is not sustained & the budget continues to have relatively optimistic assumptions regarding wages growth.
  • The impact on the RBA and shares is likely minimal as the fiscal stimulus in the Budget is modest.

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Why growth in China is unlikely to slow too far and why it needs to save less and spend more

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note looks at the outlook for China. The key points are as follows:

  • China's economy is slowing but not collapsing as the services sector holds up. A further slowing is likely in the short term, but policy stimulus is likely to see growth improve in the second half, giving 2019 growth of 6.2%.
  • Concerns about China's rapid debt growth are overstated given it reflects high (not low) savings.
  • Chinese shares are cheap and attractive on a 12 month view, but expect short term volatility.
  • Reasonable Chinese growth is a positive for the Australian economy. The housing downturn will dominate though, pushing the RBA to cut rates and this will see the $A fall further into the $US0.60s.
 

 

 

 

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The Australian housing market starting to cool (in parts)


Shane Oliver, Head of Investment Strategy and Chief Economist.

Key points are as follows:
 

Australian housing remains overvalued and this has gone hand in hand with 

high household debt. Against this, supply has been constrained and there has 
not been a deterioration in lending standards.

The hot Sydney and Melbourne property markets are showing signs of cooling
  as APRA measures bite. Expect price falls of around 5-10% around 2017.

Property investors need to be careful at this point in the property cycle as 
medium term returns are likely to be constrained.



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