The Australian economy is growing in line with the Reserve Bank’s forecast.
Growth in consumption and the contribution from net exports was higher in the June quarter than the March quarter, and the decline in mining investment has mostly passed. Household consumption growth has picked up despite ongoing weakness in income growth.
Employment growth has been strong in all states and is expected to support income growth, and therefore consumption growth, over the coming months. Price pressures were subdued across the economy in the June quarter, though retail electricity prices are expected to increase significantly in the September quarter. Housing market conditions continue to ease in Sydney and Melbourne but remain broadly unchanged in other cities.
Looking ahead, the outlook for employment over the next six months is positive. Job creation in the construction sector could prove to be an engine of growth over the medium term. Sharply rising infrastructure investment in NSW and Victoria will also help lift wages, stimulating consumer demand.
Implications for Australian investors
While growth is more synchronous across the key global economies, ongoing uncertainty leads us to support the move away from traditional asset classes into alternative sources of return and risk. These include high conviction and benchmark-unaware strategies, as well as diversification into strategies with greater offshore exposures to mitigate the pronounced home country bias many Australian investors have.
We also favour floating rate over fixed-rate investments, implemented by investing in senior secured corporate loans at the expense of government bonds, which are at risk of posting negative returns over the medium term as interest rates inevitably rise.
Rodney Turner and OBT Financial Group are Authorised Representatives of Lonsdale Financial Group Ltd ABN 76 006 637 225 | AFSL 246934.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. This information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the Law, Lonsdale, its representatives, officers and employees accept no liability for any person that relies upon the information contained herein. Information is current at the date of issue and may change.
Source: Invesco, as at 19 October 2017