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» Articles - Forecasts & outlook for 2008
Australia’s economy is performing strongly despite the effects of a slowdown in the United States. Economists say the indicators are pointing to a country in fine shape. The following are some comments and forecasts for 2008 from SuperInvestor members.
Elite Financial Solutions, chief executive officer John Condon predicted the US sub-prime mortgage crisis to inflict further damage this year. He said:
“There is still some pain in the US sub-prime market, which will shake down later in the year”.
“But my main concern is what’s happening with interest rates in Australia because of the sub-prime meltdown.”
Mr Condon, in line with many economic experts, predicts that the Reserve Bank of Australia will raise interest rates in February by 0.25 per cent. For the past nine months or so, Elite Financial Solutions has been recommending their clients take fixed-rate positions for two or three years as he expects some relief for mortgage holders by the end of this year. Mr Condon said:
“These sorts of effects tend to shake out the bottom end of the market but the top end is still going strong. They don’t have any issues spending $1 million plus on properties”.
Property plays a major part in Elite Financial Solutions’ business and Mr Condon said he still believed real estate to be a sound source of creating wealth in 2008.
According to Warranted Financial Solutions director Steve Horton, “Australia is a well developed economy that is withstanding the mistakes of allowing “free” credit to BUY real estate – we will not have the mortgage bubble that has occurred in the US or will occur in the UK.”
Hubb Financial analyst Andrew Page also expected a rate rise to be “almost certain”, only to be avoided by an ease in inflation or a change in the economy’s direction. Mr Page said:
“The major banks have just increased their variable home loan rates outside of any official move and that could be enough to temper investor spending. If this is the case, it could act to stay the Reserve’s hand."
“Also, with oil recently above $100 a barrel, it’s going to add inflationary pressure and also reduce consumers’ discretionary income, and hence spending – which will alleviate the need for a further rate hike.”
As a result of the pressure on the economy, Mr Page thought investment in the retail sector could be hit hard as consumers pull back on discretionary spending, depending on wages growth, unemployment and mortgage stress. Mr Page again:
“While these factors will in themselves not be directly affected by the US, they could nonetheless worsen as companies exposed to the US see their performance weaken, and act to halt wage increases and hiring”.
Mr Page did, however, forecast investment in staple stocks such as Woolworths to be a safe move. His view is that:
“This is due to the fact that they deal in products that are considered non-discretionary and also because investors will seek out these types of companies as defensive plays”.
SuperLiving magazine’s Paula Rogers said, on the superannuation front, that investors would be looking beyond the current uncertainties:
“There are jitters about this year as one for investment. Markets can go up and down; and this year may be rocky, but in superannuation, we’re taking a longer term view.”
In summary, the SuperInvestor members interviewed for this article believe that (i) the interest rate will increase, borrowers should fix loan rates for the next two years; (ii) real estate is still a good investment; and (iii) investment in staple stocks is a reasonable defensive investment play at present.
Eliza Adamthwaite
www.SuperInvestor.com.au
Now that you have read this, what do you think? Do you have other ideas? Please share you views with other members (eg by blog or discussion form) and/or request professional member(s) to contact you directly.
