John Hopkins Group - Economic Briefing May 2011
by Nicole Capotosto, Marketing Manager
Twice a year, the John Hopkins Group holds an Economic Briefing as part of a service to our clients to keep them informed and assist in their ongoing investor education.
At these events, we invite leading economist's from respected financial institutions from all around the country to present their view of the economy and market outlook.
The Economic Briefing held on Wednesday evening was a succesful event and we would like to thank the Macquarie Group for their participation and their research. They also flew down their Economist, Aimee Kaye from Sydney especially to present at our briefing and to be available to speak to clients afterwards.
The feedback we have received by those who attended was extremely positive, and they found the event to be both enjoyable and very informative, as well as a worthwhile investment of their time.
For those of you who missed the Economic Briefing on Wednesday evening, we have provided the Powerpoint presentation, including Macquarie's Economic Outlook and we have listed a short summary of the key points below.^
Of course, you would receive the most benefit by attending the event, however if you would like a more in depth understanding of the Economic Briefing we recommend speaking to one of the John Hopkins Financial Advisers.
Our next Economic Briefing will occur in early October so be sure to look out for it and join us.
Download: John Hopkins Group Economic Briefing - May 2011 Presentation
Summary & Key Points:
The Economy
During the Global Financial Crisis the leaders of the world came together to protect the Western world as much as possible. Now there is increasing divergence back to individual countries.
Australia is driven by China and the United States. Australia is economically linked to China, but we are financially linked to the US (ie, the Australian Sharemarket follows the US Sharemarket movements).
In China, inflation is at 5% rather than 3%, so China has employed agressive policies to control inflation.
In the US, the overall view of the US right now is pessimistic, however economists are optimistic about the US for three reasons:
1. The slow down seen in the March quarter was transient and due to weather conditions and a one-off spending in defence.
2. General indicators are turning up. Agriculture prices have increased, increase in exports, the tech sector is coming on really strongly, with a lot of activity and increasing profits, and there are no incentives for householders to save.
3. The US unemployment rate has improved from 10% to 9% unemployment.
It looks like Australia is set for another mining boom, but the general indicators are different to the first boom, as the manufacturing, retail and construction industries are not well placed, as they were when the first boom occurred.
The Australian dollar is in new territory reaching around US$1.10, making international imports more affordable, but it is hurting our manufacturing, tourism and exports industries.
Households have stopped spending and started saving, and it is expected that in 6 - 9 months households will be in a good position to start spending and investing again.
Australia has not seen the same housing overbuild as elsewhere like the US, UK, and European coutries where they experienced a housing bubble. Australia has had strong population growth and migration and there has been a fall off of new dwellings meaning that housing is in demand. In addition to that, debt in Australia is concentrated to those who can afford it, compared to the US where loans were provided to people with no income, no job and no assets.
However, housing prices are now flat to falling and households and investors are feeling wary. This downturn in the residential property market therefore provides opportunities for purchasers to find good value property, as the fundamentals for a strong residential property market are there (high demand, low supply) and before sentiment changes (as expected in the next 6 - 9 months) and everyone jumps on the bandwagon causing prices to rise.
The Budget
This budget will have the largest negative effect on economic growth for at least 40 years, however it is a 'stop-over' on the way to bringing the country back to surplus in 2011-12. The change in GDP from -4% to -1.5% is a very significant change, and a tough budget was required so that this can be achieved.
There will be an increased cost on the household (which will have a negative impact on struggling households), but overall Australia is in a good position compared to other countries, and our level of debt remains low.
Apart from that there were not many changes or surprises in the budget.
End of Financial Year Strategies
There are some End of Financial strategies that people can employ depending on their circumstances, especially in regard to superannuation and reducing your tax. However financial planning should be done year round to make the most of the opportunities available and to suit each individual's circumstances.
The Australian sharemarket is currently at the same level that it was in September 2009, and June 2005 and on a steady upward climb, and we have seen substantial increases in the Melbourne property market of around 20 - 25%.*
Disclaimers:
This general information does not take into account your needs, objectives of financial situation. You should meet with your John Hopkins Financial Adviser to discuss the above information before proceeding further.
^The information provided and the views expressed by the Macqurie Group are their interpretation of economic indicators and are not necessarily shared by the John Hopkins Group.
* Past performance is no indication of future returns.
We encourage you to speak with your John Hopkins Adviser to understand more about the current economic climate and/or to create a Financial Strategy that is suited to your individual situation and personal circumstance.
To arrange an appointment please contact our Client Liaison Officer on 1300 726 082 or email us.