2015 outlook: 2 things you need to know
The economic backdrop for the year ahead is likely to be fairly similar to what we saw in 2014; expect continued economic expansion but at a relatively modest and uneven pace globally.
Growth is likely to remain around 3.5%; ranging from 1-1.5% in the Eurozone and Japan, 3.5% in the US and 7% in China.
Inflationary pressure is likely to remain fairly low and the overall monetary backdrop, despite a probable tightening by the US in the middle of the year, will remain fairly easy. We will likely see further easing in Europe, Japan and China.
We should see growth move up to around 3%
Inflation is likely to remain benign
The Reserve Bank of Australia is projected to cut the cash rate to 2.25% early in the year with a 50% chance of another cut in the June quarter.
Rebalancing the economy
As Australia transitions back to a more balanced economy, investors should try to avoid getting too gloomy. Yes, the mining sector is slowing down, but low interest rates and a falling Australian dollar is providing a great boost for non-mining parts of the Australian economy. For instance, we’re seeing a return to life for retail-related areas of the economy. Housing and construction has picked up, construction activity related to infrastructure continues, and the tourism, manufacturing and higher education sectors are showing signs of improvement.
Unemployment will eventually fall
While economic growth is still not strong enough to lead to a fall in unemployment, we expect that the job market in 2015/16 will start to pick up as the stimulus to the economy from lower interest rates and the falling Australian dollar starts to feed through.
What does this mean for investors?
It should mean another year of reasonable returns for diversified investors. But there are two key things that investors need to be mindful of:
What we saw in 2013 and in 2012 (returns of around 20%) out of shares is not sustainable over the long-term. Expect something more like 8-10%;
Every year experiences a lot of ‘noise’ and 2015 will be no different. This can be negative in terms of distracting you from your key investment strategy. Try and turn down the volume on the financial news and focus on maintaining a long-term investment strategy.
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