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  2. Australian outlook muted as US economy set to surge

Australian outlook muted as US economy set to surge

Media Release
16 Dec 2016

While economic news from the US is bringing Christmas cheer to investors, the local story is not so positive, says David Bryant, chief investment officer at Australian Unity Wealth.

“Despite a rather rocky year, the US looks like it is going to finish the year on a relative high,” Mr Bryant said.

“The fact that the Federal Reserve raised interest rates is a sign of ongoing confidence and strength in their economy, it’s the forward projections that are of most interest.

“It’s now likely that there will be three rate rises in the US in 2017, which should help stimulate the economy and boost consumer and business confidence.

“Investors in the US and global assets will be well-placed to benefit from this.

“The rate rises will also impact the Australian dollar which will bring mixed blessings for local businesses and investors, as higher US rates mean a lower AUD, so capital will flow to the US.”

“Imports will be more expensive, and inflation higher, but our exports will be more competitive.

Looking at the local economy, Mr Bryant said Australia is in sore need of some good news.

“There hasn’t been a lot of good tidings domestically this Christmas season. The GDP numbers last week were very poor - minus 0.5 percent and broadly weak.

“The unemployment figures are also sobering, seemingly stuck in the high five percent range, while consumer confidence has fallen almost four percent in the last quarter../br>

“Our prized AAA credit rating is now under threat, which would meanh igher borrowing costs for Australia - and Australians.

“We’re already starting to see this come through in interest rates, with many banks already starting to increase their rates, as funding costs for overseas capital start to increase.

“Indeed rates are now out of the hands of the Reserve Bank of Australia - it has lowered rates about as far as it realistically can, without having the desired result, and there is little room to manoeuvre from here.”

However, Mr Bryant said that there is a silver lining for Australia.

“The fact that the US - still a key driver of global growth - is strengthening and building confidence, it will ultimately have a knock-on effect in Australia.

“I would expect that during 2017, we may see improved conditions domestically but investors should remain focused on their long term investment strategy and not become distracted by market noise.

“A sensible strategy right now is to ensure good diversification with a mix of currently low returning but secure fixed interest investments with higher yielding investments in other asset classes, including domestic and international shares, and property,” Mr Bryant said.

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Penelope Bold

Corporate Affairs Manager (Wealth & Capital Markets)

Senior Media Manager