Shane Oliver
Chief Economist and Head of Investment Strategy

The Australian economy is experiencing encouraging growth in comparison to other developed economies around the world. In this video, Shane Oliver looks at the drivers behind Australia’s economic growth figures, as well as the diversity in housing market figures across the country and the global sharemarket performance.

We also highlight some key information to note following the recent Brexit result.
 

Australian economic growth figures

Australia’s economy has continued to surprise to the upside despite the mining boom’s end. Recent figures show a growth rate of around 3 % (compared with the US at around 2% and Europe at around 1.5%), buoyed by housing, consumer spending, tourism, higher education and to a lesser extent, manufacturing along with resource export volumes. This growth has provided support for profit growth in Australia outside of the resources sector, which is likely to continue.

Australian housing market figures

There is currently a wide divergence in the Australian property market – Sydney and Melbourne are performing reasonably well while Perth and Darwin are in negative territory and the other capital cities sit somewhere in-between. We see the Brisbane property market recovering and starting to follow in the footsteps of Sydney and Melbourne. If you look at the recent monthly figures that have come out of the private sector data providers, overall the market in Australia has picked up around March – May, albeit it’s not as strong as it was 12 months ago. A property crash is still unlikely, with any weakness emerging only likely to cause a 5-10% pullback. Apartments are most at risk given the recent surge in supply in some areas.

Global sharemarkets

Investor concerns about global growth have given way to a decent recovery in sharemarkets in recent months. There has been some renewed volatility around global uncertainties – including Brexit – despite this, global economic growth figures show a recession is unlikely. The September quarter is generally a rough patch for shares but beyond this period we see an environment of reasonable global growth and very low interest rates. When combined with low returns on government bonds and cash, we see a reasonably positive outlook for sharemarkets over the coming 12 months.

Global insights on Brexit

With Britain having voted narrowly in favour of leaving the European Union (EU) on 24 June, there has been some initial, aggressive price reaction from investment markets. While markets were generally not expecting this result and much uncertainty still remains around the mechanics and detail of the exit, AMP Capital’s investment teams have provided their insights on the possible medium term implications of Britain’s exit of the EU (Brexit).

Key points

  • There is a high degree of uncertainty about the future, as the sustainability of the EU is being questioned and further referendums in the EU are probable. Scotland, which voted aggressively in favour of ‘Remain,’ appears to be laying the groundwork for another Scottish referendum on independence soon. This uncertainty could serve to undermine growth. However, for Eurozone countries, the hurdle to leave the Eurozone is higher than Britain leaving the EU as this involves adopting a new currency, paying higher interest rates etc.
  • There is a risk of recession in the UK. However, we will be closely watching the data and monitoring developments in our ongoing assessment of the risks to growth. UK assets appear to have priced in this uncertain future environment. It’s important to note that the UK economy represents only 2.4% of global GDP, so the economic impact of weaker UK growth on the global economy is unlikely to be significant.
  • Contagion risks: financial stress on European banks (particularly Italian banks) could be the mechanism that causes the transmission of this event to go from a UK event with a global hiccup to a global recession.
  • Markets can overreact when presented with increased uncertainty, which can create dislocations and heightened volatility in the short-term. There will be investment opportunities in this environment as some markets become oversold, and we will continue to carefully consider portfolio strategy and medium term opportunities.

Read our full analysis to find out more.

Shane Oliver

Dr Shane Oliver has extensive experience analysing economic and investment cycles and how current positioning affects the return potential for asset classes such as shares, bonds, property and infrastructure. Shane is a regular media commentator, providing economic forecasts and analysis of key variables and issues that affect all asset markets.

 

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.