6 March 2017
Over the past week Australian shares were 0.2% higher. Shares in developed countries were up 0.4% with the US market 0.7% higher. Shares in emerging markets lost 1.3%. The Australian dollar was 1.0% lower at 75.96 US cents. The 10 year bond yield in Australia was 0.08% higher at 2.81% while in the US, the 10 year bond yield closed 0.17% higher at 2.48%. The oil price lost 1.2% to 53.33 US dollars per barrel.
Last week’s National Accounts showed that Australia’s economy grew 1.1% in the last quarter of 2016. This means that Australia avoided a recession. Technically a recession is two consecutive quarters of negative economic growth. This is a good result. While it doesn’t feel like we’re in recession with employment markets solid, the media and political frenzy if Australia had entered into technical recession could have sapped confidence and created uncertainty.
The quarterly growth result was strong and above market expectations. It saw a reversal of some factors which detracted from growth in September, most notably government investment. Looking at industries, 15 out of 20 recorded growth with the strongest performance coming from mining, agriculture, forestry and fishing, and scientific and technical services. The Australian economy is also benefiting from a strong terms of trade, which we’ve written about previously. The terms of trade represents the value of exports relative to the value of imports.
However, there are always risks to the economic outlook. Last week the Organisation for Economic Cooperation and Development (OECD), an international multi government economic organisation, flagged strong concerns that Australia’s property prices are now so high, outright and relative to incomes, that a correction could have a severe impact on the economy.
Our core scenario remains that Australia’s economy will be solid over the medium term but there are risks that need to be accounted for when constructing portfolios.