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  • Writer's picturePete Jonson

Monday Sanity Break, 1 January 2018 - Slow growth to continue (we hope)

We wish you a happy and interesting 2018, gentle readers. What will happen this year? Will the global economy continue its halting recovery, the US part stimulated by President Trump's tax cuts? Will China's looming debt crisis get worse? Will the UK's Brexit create economic havoc for the brave 'we wish to be masters of our own fate' nation. Is the world economy headed for a swing of the pendulum to a less 'global' approach, with renewed tariffs, other barriers to free trade, more rigorous vetting procedures for issue of visas and many cases of Trump's 'America first' approach.

We did think Trump's announcement on the move of the American Embassy to Israel to be a financial master stroke, assuming America has the courage to actually cut all financial aid to countries who voted against the embassy shift in the United Nations. Think of the fiscal benefits to America, as well as the risks of such 'America First' withdrawal.

Geopolitical risks include nuclear war on the Korean peninsula, further break up of the EEC, collapse of the Chinese financial system, US departing the United Nations, Russia trying again to sort out the Ukraine and further terrorist action now the bad guys have been driven out of the Middle East into naive western nations.

For the Australian economy, New Year's Day brought a bank economist's rather independent views about the outlook for 2018 and 2019, assuming (we think) the absence of major geopolitical disasters. Bill Evans of Westpac has become something of a maverick, far better than the old days of the 1980s when bank economists met at the RBA to agree forecasts for the current and the next year. One old boy revealed at this final appearance his great wisdom. 'I have always sat in the middle of the group, opposite the Chair of the meeting. Since the Chair takes turns for the direction of contribution, I have always quickly calculated the average of those speaking before me. This means I need do no work myself and always look 'reasonable' in the ideas of my colleagues.

Anyway, today I draw attention to a reasonable, fairly independent outlook from Westpac's Chief Economist, Bill Evans. Key points are:

* ' Slow-growth-to-continue-in-2018-and-2019', compared to RBA and Treasury predictions of increasing growth.

* ' Signals from the September quarter national accounts are not encouraging for the official view. There is some evidence that households are reassessing prospects for income growth, particularly with respect to a lift in wages growth.'

* 'Resulting below-trend consumption growth will also discourage any recovery in equipment investment.'

* ' The regulator’s [APRA's] macroprudential policies are restricting interest-only loans and tighter guidelines for all new loans are slowing house price inflation and credit growth. We expect housing credit growth to slow from 6.5 per cent in 2017 to 5 per cent in 2018 and 4.5 per cent in 2019. '

* ' Inflation is expected to remain benign, holding a little below the bottom of the RBA’s 2-3 per cent target band. In this regard we are in agreement with the Reserve Bank ... '

* ' Under these circumstances we cannot fall into line with most other economists who continue to anticipate that the Reserve Bank will begin to raise rates in 2018. Indeed we have been of the view through 2017 that the official cash rate will remain on hold in both 2018 and 2019.'

* ' A heavy toll will be taken on the Australian dollar, with the currency forecast to fall to US70c by the end of 2018.' As US raises cash rates further in 2018 ' 'We expect a move down to US68c in 2019, with downside risks.'

* ' Political uncertainty will remain a feature of the Australian economic picture in 2018 and 2019.'

* ' The two major global risks for 2018 and 2019 centre on the US sharemarket and the Chinese financial system.'

The Sporting life

The focussed Aussies, lead by Steve Smith with yet another century, David Warner with unusual caution, til he lost it and provided Cap'n Root a fine catch, and newly mature Mitch Marsh, who stayed awake and retained his wicket like a battler from the Mont Albert Fourths, held on for a draw on a completely dead MCG 'drop in' pitch. Surely it is possible to produce a drop in pitch with fire and brimstone, or at least 'fire and fury' on days 1 and 2 while Australia is bowling.

Now we go to Sydney, where there is the prospect of, Ashton Agar, a leggie from Afghanistan, joining Master Lyon, who looks like a leggie when bowling to the English left-hand batters. Personally, I'd promote Shaun Marsh to no 3 batter and return Peter Hanscombe to the side at number 5, but selectors will probably think this is too harsh on Usman Khawaja.

With the tennis yet to begin, Henry has watched some fine work by wimmin cricketors in their version of the Big Bash. Like the AFLW players, the wimmin cricketors go hard at the opposition and show great ability. Like business and government, Aussie sport has opened to allow ladies to participate and they do a great job. Henry is pleased to be retired from being a boardman as his younger mates are universally complaining of less qualified ladies elbowing them aside for board positions.

New Zealand now has a President, PM and High Court Judge who are (gasp!) female. This is your future, fellow blokes, so you must learn to cope.

Image of the week.

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