Despite low interest rates, investors did well in 2016. Returns from property and Australian shares have been adequate, the US market is at a record high and commodities have partially recovered, spurring a partial resurgence in Australia’s economy. However, the 2017 financial outlook for Australia contains challenges, some of which will be listed below.
Australian companies that borrowed in US funds last year will have to handle higher interest rates and a growing US dollar in 2017. The consensus is that Donald Trump’s presidency will boost the United States’ economy via infrastructure investments and tax cuts, but trade partners are concerned about the effects of changes in the US’ trade policy. For Australia, the main concern is negative effects on China, its largest trading partner. A continued strong Asian economy is important for commodity prices and for Australia’s chances of building wealth.
The United Kingdom has been able to lessen the severity of the effects of Brexit (its exit from the European Union) on its economy by a reduction in the pound’s value. Struggling economies such as Italy and Greece where the banking system is under significant pressure have no such cushion, with the euro’s value being fixed. The UK and Australia have a historic connection, and the economies of the two countries are intertwined. Therefore, any British economic slump affects Australia as well.
According to Goldman Sachs, the Australian economy has recently gone through a transition that will result in an increase in the dollar’s value for 2017. A corresponding increase in interest rates could come as soon as the second half of the fiscal year. The factor behind the optimism is the recent price increase of critical commodity exports, which has created a sharp upturn in the country’s income dynamic.
While the interest rate increase for 2017 is unlikely to be steep, borrowing rates are levelling out as major banks increase fixed rates in anticipation of a future government rate increase. With everything taken into consideration from a global financial outlook, next year could be an uncertain time for Australian share, money management and property markets, and caution will be required for the country’s financial future.
Paul Baggetta is the Founder & Principal of Baggetta & Co. Paul Baggetta has been a Taxation Accountant for over 36 years, a Financial Planner for over 18 years and in 1993 qualified as a Real Estate Licensee, holding a Triennial Certificate (currently not trading), and operated his own Real Estate business for property investment clients for over 5 years as a second business.
Financial planning services provided by Paul Baggetta as an Authorised Representative (No. 261469) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services License No. 223135.
Taxation & Accounting services provided by Paul Baggetta as a Registered Tax Agent (No.61487008) and is a Member of SMSF Association, IPA & NTAA.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
February 2, 2017
January 30, 2017
January 27, 2017
Subscribe to the Baggetta newsletter to stay updated with regular industry and company news.
For more information about the services we provide, or to find out if you are eligible for a free no-obligation consultation, call us now on 9317 7300.
The information provided on this website is for general guidance only and is no substitute for professional advice. It should not be used as a substitute for legal, business, accounting, tax, financial planning or other professional advice.