The Lucky Country

The Lucky Country

The term the Lucky Country is certainly appropriate to Australia, after posting over 25 years of continued economic growth Australia remains in an illustrious group of countries. Australia’s latest GDP numbers were released recently which showed the country’s GDP growth accelerated 1.1% in the last quarter of 2016. This result means that the country is on a year for year growth rate of 2.4%.

However, questions remain about the construction sector’s stability and the impact of low wages growth combined with record high household debt. From firsthand experience, it is not too dissimilar to the conditions which faced Ireland after the Celtic Tiger boom during the ‘Noughties’. One thing which impacted Ireland and which may affect Australia was outside global forces.

Australia could be affected in several ways, such as a pullback in commodity prices caused by a slowdown in China or higher global inflation which would result in higher interest rates. With the upcoming US Federal Reserve meeting on the 15th March, it might be fair to say we are at the beginning of this change. If interest rates are increased in the US then this could impact on the ability of our ‘Big Four’ banks to continue to benefit from access to US debt markets. As a result this may mean they need to lift interest rates here in Australia to maintain profitability and margins. Now if either of these scenarios were to play out then this could see flow on effects to our property markets and government coffers, and before you say property prices never fall, ask someone in Perth.

These are potentially turbulent times for the Australian and global economies and one which requires an active and selective approach to portfolio management.