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 MARKET REPORTS |
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Economics
Australian economy steaming along nicely despite US sub-prime crisis
December 10, 2007
Clifford Bennett, Chief Economist, Sonray Capital Markets
Australian GDP Third quarter: 1.0% (Quarter on Quarter) 4.3% (Year on Year)
Australian Equity Market: POSITIVE
Australian Dollar Impact: POSITIVE
Interest Rate Influence: RBA to HIKE 25 points in February
Australia's GDP grew by 1% in the third quarter this year - in line with expectations and confirming that the Australian economy was steaming along very nicely prior to the US sub-prime crisis, which continues to unfold. Nevertheless this data confirms the Australian economy probably has a strong year ahead of it through 2008. The US slow down impact on the rest of the world, and particularly Asia, is likely to be less than current consensus forecasts.
The challenges facing the Australian economy are the drought, infrastructure bottlenecks, and the fallout from the US sub-prime debacle.
The infrastructure bottlenecks and the drought are fully priced in to this Q3 GDP number, but the sub-prime/US slow down is not. Looking forward the drought is hopefully unlikely to worsen, or further erode crop production from the already devastating low levels being seen. Infrastructure bottlenecks will not be resolved over-night, but will steadily be washed away over the next 12-18 months. In fact in 18 months time, commodity production and exports should be flowing freely and strongly.
The only negative on the horizon is the US economic slow-down and further fall-out from the sub-prime crisis.
The US slow down of itself may be severe, but in the worst case scenario we see it taking only 0.5% from global GDP in 2008, and more probably around 0.3%. This will allow the global economy to continue robustly and demand for commodities will be barely dented. The problem is the "fear" of more serious widespread global impact.
As is often noted, it only takes fear to create a slowdown. The most likely scenario we envisage is consumer and business sentiment surveys taking a battering globally, but the actual trade and orders and production numbers remaining to many surprisingly strong, outside of the US that is. Therefore there should on this occasion be a break from tradition with the Australian economy remaining strong on the back of firm Asian demand, and still firm consumption in the domestic economy.
The more serious risk to the Australian economy comes in the flow on of higher credit costs globally, which will increasingly trickle through to Australian home loans. This will impact spending slightly, but should be contained to a level that does not trigger the kind of problems the US is experiencing.
We may see the plateau in home prices spread more generally across all states however, in the first half of 2008. Meanwhile exports should continue to increase. Hence 2008 is likely to be characterised by increasing exports, firm though slightly moderated growth in consumption, and a rate hike in February and again in Q2.
2008 Forecasts:
GDP: 4.0%
CPI: 3.2%
RBA: 7.25%
AUD: 1.0100
USD ASX200: 6,950
Key Forecasts:
- Fed will cut three times by 25 points in 2008.
- US economy will flirt with negative growth Q1, Q2.
- US equity markets remain at risk near term.
- China to remain a powerhouse.
- Global economy to remain firm.
- Commodities volatile but bullish.
- Gold target at US$495, US$800 achieved, US$1100 next.
- US dollar to continue accelerated collapse next 6 months.
- Carry trade is old news and over, USD/YEN to decline to 103, 97.
- RBA to raise rates to 7.25% in H1 2008.
- Australian dollar will continue to climb, 93 cent target achieved,
next parity $1.00, but in 2008, then 1.08 1.12 in following year.
- Global equity markets may suffer minor drag from US market
weakness occasionally, but remain strong.
- Australian equities increasingly aligned to global growth. 6,900 7,350 in 2008.
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Stocks: Double digit returns likely in 2008
Trading: The ultimate guide to trading shares for beginners - part 5
Stocks: Stock of the Week: Saferoad Holdings
Smart Investing: Investors have reason to celebrate Reserve Bank transparency
Markets: Australian economy steaming along nicely despite US sub-prime crisis
Trading: Top Ten CFD stocks for the week
Stocks: Stock to watch: Greencross
Companies: BHP takeover bid 'dead': Rio Tinto CEO
Disclaimer: This recommendation has been issued on the basis that it is only for the information and exclusive use of the particular person to whom it is provided by Sonray Capital Markets Pty Ltd ABN 18 104 482 993, AFSL 231151. These recommendations are current as at the date of issue. Past performance is no guarantee or reliable indication of future results. Trading in derivatives may involve a high degree of risk and significant loss, and is appropriate only for persons who can assume risk of loss in excess of funds deposited. This recommendation is of the nature of general information only and must not in any way be construed or relied upon as legal, financial or professional advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of any investment for your circumstances. Although the information in this recommendation has been obtained from sources considered and believed to be both reliable and accurate no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred herein.
Please note that CompareShares.com.au simply publishes analyst reports on this page. The publication of these reports does not in any way constitute a recommendation on the part of CompareShares.com.au. You should seek professional advice before making any investment decisions. |
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