Where the economy heading? What will the business environment be like for my events business?
Should I really be thinking about serious changes?
I'll tackle here the first part of these questions. Some of you may know that did study economics and in fact spent several years with one of the world's most successful international banks…..meaning, I won't try and give you my view since there are many out there to choose from. But I am giving you two recent comments that I think are fair and and well-distilled and capture the essence of what 2014 will bring.
Alan Kohler writes in his weekly newsletter, that the decision by the Federal Reserve not to start tapering this year, and the decision by the European Central Bank to cut interest rates in November, plus the ongoing stimulus in Japan, have set the global economy up for a very good 2014.
We are looking at a synchronised global acceleration of growth and inflation in 2014. The only two serious concerns were of deflation and collapse in Europe and a hard landing in China. Neither of things now looks at all likely, but growth in both Europe and China is likely to be weak for some time to come as they get their reform acts together – certainly weaker than the US and Japan.
In anticipation of synchronised growth in 2014, global markets have had a remarkable synchronised expansion in 2013. Measured in US dollars, the S&P 500 has returned 26% year-to-date, the Nikkei 26%, the German Dax 26%, the FTSE 250 25% and the French CAC index 25%. The Australian market has returned minus 6% in US dollars and 8.6% in local currency, but as discussed here before, it's really two markets: banks and resources. The Aussie banks have returned 22% this year and the miners minus 11%. The ASX 200 is a meaningless average of those two.
The US market is now trading at a valuation premium because it has been going up steadily for several years because of quantitative easing, despite relatively subdued earnings per share, and may be coming to the end of its outperformance. With Europe and China struggling with reform, the best bet in 2014 may be Japan.
Rider Levett Bucknall has published its Oceania Report – Fourth Quarter 2013, which assesses conditions for business, with special reference to the construction sector. RLB writes:
The Australian economy is now in its twenty second consecutive year of economic growth including the period of the Global Financial Crisis. The increase in mining sector activity over this period, primarily driven by urbanisation in China, has allowed Australia to maintain this prolonged period of economic growth. However, as the capital intensive mining investment phase has reached its peak and transitions into the extraction and production phase, Australia’s economy will face a more challenging time. The economy will need to rebalance its growth drivers, so that the residential sector and non-mining business investment takes over the recent reliance on mining capital investment. This transition will not be without some pain and the fragility in both business and consumer confidence underlies the difficulties ahead.
The Australian economy is growing below trend and conditions in the labour market are soft. The RBA noted that “consumer confidence was above average levels and business confidence had increased, although it remained to be seen if this would be sustained.” It stated that “the effect of low interest rates was evident across a range of indicators and had further to run.” The RBA cited the housing market, both prices and leading indicators of dwelling investment, as evidence of this. On a more positive note, the RBA indicated improvement in prospects for investment in the tourism sector and that retail sales picked up in September.