The US economy is on fire, and inflation and rates are likely to continue to firm. To get straight to the point, these pressures are flowing all around the world and this will include Australia.
It is highly unlikely the Reserve Bank of Australia will be lowering official interest rates below the current 1.50% levels.
Let’s be fair here. We should all be able to prosper at this level of interest rates and should they go higher. As I have said before, we should not fear higher interest rates in the future as they will be a product only of a heightening level of prosperity generally. Read much higher property prices.
A lot of people keep going on about how Australian property prices are too high. Which a is a great indicator to us, because they are exactly the same people who said the exact same thing, every year, since 2008. We all know what property has done since then. So, as they talk their dire warnings, just smile and stay involved.
Staying involved in the greatest period of prosperity in the history of the human race is a good and fortunate thing to do. This is especially true of Australia.
Though there are some soft spots in the Australian data, noticeably recent Gross National Product (GDP) data, which was negative, we are still well placed.
Many economists like to extrapolate the latest economic number released. It is an excuse to get excited and sell newspapers. We must always remember these numbers are only sample surveys in any case. They are not at all exactly what the economy is actually doing. Often these data releases ebb and flow significantly. I call this the statistical pendulum, swinging back and forth, roughly around some always hidden true reality.
Going forward, the outlook for the Australian economy remains very strong. Due to China. In spite of ourselves. We are surrounded by booming Asia. China didn't crash last year, as those fear mongers told you it would. It was in fact, incredibly strong and even accelerated, as the world’s second-largest economy accelerated to 6.8% GDP in the last quarter. This is remarkable.
You may have noticed that commodity prices are going up significantly as burgeoning demand from China/Asia grows. This is great for Australia. Commodity exports are going up in both volume and price. We are even starting to see actual trade surpluses.
With the US economy accelerating sharply through the end of last year and into 2017, you can see that the whole world, really is living in economic terms much as we said would be the case. This means plenty of good times ahead, and a continuation of that population pressure and investment interest from China/Asia, that will continue to drive Australian property prices higher.
It is important to note here that the US economy is not strong because of Trump.
It was already strong and accelerating. It is also the case, I believe, that there is, even more, acceleration now, simply because that Presidential election is over.
The US economy would have been booming regardless of which candidate had won. Though it must be said, in the midst of some odd views on some points, that Trump’s planned overhaul of taxation is exactly what I have been recommending for Australia since 2008. These changes will greatly invigorate the US economy. Beyond any calculations or forecasts.
These are serious boom times.
In such a global climate, and with a resurgent export sector, some in the RBA will begin to push for a rate hike. The good news, however, is that the new Governor will shy away for as long as he can from making a decision on anything, but his tea. For as long as he possibly can.
The Reserve Bank of Australia failed the nation badly. It knows it got it wrong all through the GFC.
That pain sticks, and so they will be slow to raise rates. With inflation firming, but not becoming alarming, they will have room to keep rates at 1.5% at least until 2018 I believe. Maybe longer.
So rates will edge higher, but more slowly than has ever occurred in the history of the country. This, in a booming world economy, and strong Asian demand for our resources, mineral and food, paints a great outlook for continuing to invest in property.
Those who didn’t buy in recent years will be forever playing catch up to those who did, for generations to come.
Clifford Bennett
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