2015 has seen another long worry list for investors and this poses the question of what the financial outlook for 2016 might be.
Some of these – such as terrorist attacks in Paris, the escalating war in Syria, refugee problems in Europe, Greece’s latest tantrum and tensions in the South China Sea – have not had a lasting impact on investment markets. However, worries about deflation, falling commodity prices, fears of an emerging market (EM) crisis led by China and uncertainty around the Fed’s first interest rate hike have had a more lasting impact. In Australia the focus remained on the rebalancing of the economy after the mining boom as well on property bubbles. While it has not been a bad year for investors, overall returns have been constrained.
For Australia, the economic outlook for 2016 is likely to continue to rebalance away from mining. However, in the face of a further fall in mining investment, falling national income, a slowing contribution from housing and upwards pressure on bank mortgage rates from increasing capital requirements, further monetary stimulus in the form of more RBA interest rate cuts and a lower $A are likely to be needed. If this occurs then improving conditions in sectors like consumer spending, tourism, manufacturing and higher education should see GDP growth move up to around 3% by year end.
The main things to keep an eye on for the financial outlook for 2016 are:
- how aggressively the Fed raises rates – continued low inflation is likely to keep the Fed gradual (as we expect), but a surprise acceleration in inflation would speed it up;
- whether China continues to avoid a hard landing;
- whether non-mining investment picks up in Australia – a failure to do so could see more aggressive RBA rate cuts;
- ongoing geopolitical flare ups, including in the South China Sea; and
- whether the global economy can finally throw off the worry list and constraints seeing growth perk up.
All in all, the financial outlook for 2016 may well be more of the same …for the whole article please go to the following link from AMP Capital’s Head of Investment Strategy and Chief Economist, Shane Oliver. financial outlook for 2016