This was published 6 years ago
Economists' fearless predictions point to lower returns for investors in 2018
By John Collett
Despite the worries about Donald Trump, Chinese debt, North Korea's missile tests and whether property prices in Australia will crash, investors have had a good 2017.
Whereas the local sharemarket looks like ending the year with a total return of about 10 per cent, economists expect tougher going next year, with our sharemarket ending 2018 with a whimper at 6200 points, from about 6000 points now.
The forecasts of economists should be taken with a pinch of salt, but the assumptions behind the forecasts can be interesting.
And global shares are unlikely to do as well next year, after producing a likely total return (including dividends) for 2017 of about 15 per cent in Australian dollar terms.
The cash rate is likely to stay on hold at 1.5 per cent; though, economists say there's a chance of one, or perhaps two, rate hikes by the end of 2018.
The fearless forecasts of economists should be taken with a pinch of salt; as they point out, forecasting is more art than science. It's the assumptions behind the forecasts that are often more interesting.
Most economists expect economic growth to continue at the current annual rate of 2.8 per cent, or even closer to 3 per cent over the course of next year.
They say home building, which has big knock-on effects for the economy, remains solid in most states and territories and the business sector is in good shape.
Interest rates low
Craig James, the chief economist at CommSec, says inflation and interest rates have probably bottomed.
The cash rate is likely to remain at 1.5 per cent for most of next year, though he has pencilled in the possibility of a rate hike in December 2018.
Paul Bloxham, the chief economist of Australia and New Zealand for HSBC, is more bullish.
Growth could lift 3.2 per cent in 2018, supported by rising business investment, increased spending on urban infrastructure and strong growth in exports of LNG, tourism and education services, Bloxham says.
Higher growth is expected to tighten labour markets and increase wages and inflation, he says.
"We expect the Reserve Bank to start lifting its cash rate from around mid-2018 and expect the cash rate to be 2 per cent by the end of 2018," he says.
Properties' soft landing
CoreLogic figures show Sydney prices have fallen 1.3 per cent over the past three months to the end of November, but risen by 1.9 per cent in Melbourne – though price growth in Melbourne is slowing.
Sydney and Melbourne prices could fall by about 5 per cent over 2018, says Shane Oliver, the chief economist at AMP Capital Investors. Adelaide and Brisbane will likely see moderate gains, while Hobart prices likely to continue to boom, he says.
Paul Bloxham says Australia has had a housing boom rather than a housing bubble. He is expecting Sydney prices to rise by up to 4 per cent in Sydney and by up to 9 per cent in Melbourne.
Global shares to cool
With US shares in particular having had a very good run again in 2017 "it is due for a pause and I would not see much action over the next 12 months on the US sharemarket, up or down", says Chris Caton, an independent economist.
"There's one big caveat – the political situation in the US is potentially unstable," Caton says.
It is just over a year since Donald Trump was elected president of the United States. It has been a wild ride with resignations and sackings.
Trump does look to have cleared the way through Congress for his business and personal tax cuts, which could see the boom in US shares extended into 2018.
China debt
As everybody knows, any sharp slowdown in China would have big impacts on Australia.
As Australia's biggest trading partner, the Reserve Bank keeps a close eye on China. The Reserve Bank said in October that it is worried about China's debt level.
"Relative to GDP, China's corporate debt exceeds that of most advanced economies, and is more than three times higher than in economies with comparable per capita incomes," the RBA said.
The International Monetary Fund (IMF) says the Chinese economy is continuing to slow. It estimates GDP growth will be 6.7 per cent for 2017 and 6.4 per cent in 2018.
Bitcoin bubble
The award for the most irrational phenomenon of 2017 goes to bitcoin, the price of which has risen to about $US1800 (at the time of writing) from about $US1000 at the start of this year.
The massive returns from the cyptocurrency over the year masks some big falls. It looks as if increasing numbers of small investors are buying the "currency", forcing up the price as demand outstrips supply.
The Reserve Bank of Australia governor, Philip Lowe, recently used the words "speculative mania" when talking about cryptocurrencies.
Twitter: @jcollett_money