Now that we’ve taken a look at the big finance stories of 2012, let’s turn our attention to the year ahead and the big picture issues that will affect your personal finances.
Starting with interest rates, the RBA is likely to make further cuts in coming months in an effort to kick the economy along as Aussies continue their reluctance to borrow. This ought to see home loan, business lending and term deposit rates all lower and stir some improvement in the all important business and consumer confidence.
One of the offshoots of improved confidence and retreating interest rates will be a move by investors from cash back to riskier assets like shares and bonds.
However if the global economy does quickly stumble back to its feet and green shoots of growth turn into the roses of a rebound, we may have seen the bottom of the interest rate cycle already.
Interestingly, if this is the case, the financial ramifications will be very similar to those of further rate cuts. Confidence will be boosted, spurring borrowers back to the bank, investors back to the market and politicians back to the soapbox to take credit for it all.
Whichever way it goes, we can expect the Aussie dollar to remain above, or very close to, parity with the greenback for the rest of the year.
High domestic interest rates compared to the rest of the world will continue to prop up the dollar, while increasing commodity prices (iron ore is back at $US150/tonne) and rebounding demand for resources will stoke the other side of the currency fire.
Which brings us to the source of that insatiable appetite for our resources, China. We saw some strong economic data come out of the country towards the end of 2012 with the all important Purchasing Managers Indexes continuing to show an expanding manufacturing sector.
With this ongoing expansion, gloomy commentators will again be kept at bay in 2013 as China continues on its merry way, even if it’s at a more sustainable growth rate of below 9%. This will kick the Aussie resources boom further along down the road.
It is no mean economic feat that China engineered a “soft” landing in the aftermath of the Global Financial Crisis.
Back at home we still need to move away from our heavy reliance on resources, but this will take time and I expect the industry to continue to underpin solid 3% to 3.5% economic growth in 2013, which will keep unemployment under wraps even if it creeps slightly higher... which I expect it will.
On the property front I’m tipping another middling year in 2013.
While the possibility of lower interest rates will entice more buyers to market, I’m not expecting anything spectacular. As Commsec’s Craig James predicts, there will be some improvement in home building and sales over 2013 on the back of steady population growth with home prices likely to lift by around 3%.
Take the tumultuous 2012 as a yardstick where Australia still achieved growth of about 3.3%, maintained unemployment at around 5%, kept inflation right on target and made very healthy sharemarket gains to boot. This is par for the course in 2013.
What Could Go Wrong?
Over the next 2 months we’ll continue to watch the US grapple with their weighty debt burden and Europe try and climb out of their hole, but given these were ongoing themes of last year too, I’m predicting a similarly solid economic result for the Land Down Under this year.
That said, there is a long way to go for both these regions to achieve financial stability, and like we saw in early 2012, nobody can predict what will happen if they get it wrong. Strong, determined, pro-active economic management is a must. Unfortunately, political jousting is still seen as a must by those at the top too.
To that end, another tight election will weigh on the local economic scene this year as well. But if it’s as closely run as the last one, as I’m anticipating, then either side will be kept in check in Parliament.
So overall there’s nothing to get overly excited about in 2013. But that’s how we like it. A steady economic environment to make our own fortunes in.
|Gold buyer's guide|
|What's the best way to sell your property?|
|Can your personal finances stand an economic crisis?|