After a 2011 that was indeed one of the toughest years in recent memory for virtually all sectors of the economy both domestically and overseas, it is certainly appearing that 2012 will be more of the same, at least for the first half of the year anyway.
2011 saw just about everything thrown at us. The floods and cyclones in Queensland, the European Debt Crisis which is still a long way from being resolved, the Mining Tax, the Carbon Tax, a mild recovery in the Share Market early in the year but then a significant fall followed by a period of ups and downs, an unprecedented rise in industrial disputes, a serious decline in new home construction and of course a year in which property values in most parts of Australia declined for the first time in many years. The old saying “May we live in interesting times” which apparently is an old Chines proverb which roughly translates to “May we experience much disorder and trouble in our lives” certainly rang true for most of us.
I guess the only high point, at least for those of us with mortgages, is the two rate cuts by the Reserve Bank which saw the banks only pass on some of the first cut, much to the chagrin of Wayne Swan, but all of the second cut.
So the big question is what is in store for 2012. Well if you believe the ancient Mayan’s, apparently the world is meant to come to an end later this year and if you believe Nostrodamus, 2012 is the year that World War 3 commences. Far be it from me to comment or try and debunk these predictions, I shall leave that to the conspiracy theorists amongst us.
However, I will make a few predictions as to what 2012 has in store for us both domestically and internationally, bearing in mind that like all of us who make predictions, we are bound to get some of it wrong.
China
Chinese economic growth will fall quite dramatically and whilst this won’t have a significant effect on China itself, it will have an impact on the commodity oriented economies such as South Africa, Brazil, Canada and of course us here in Australia. Commodities that have risen on the back of China’s construction binge such as iron ore, copper and coking coal will be most affected, however thermal coal, oil, natural gas and uranium should continue to do ok. Clearly this would have an impact on the Australian Resource Sector and of course our economy as a whole as it was the commodity boom which helped insulate Australia from much of the global troubles during GFC.
USA
The US economy should continue it’s mild recovery during 2012. Job numbers, housing starts and increasing business investment indicate a growing optimism despite the fact that there is still a significant amount of debt deleveraging still to work it’s way through the system. All this could see the US Dollar strengthen against other global currencies.
Euro Zone
Clearly the stand out basket case of 2011, there is still much more pain to be felt. Whilst there has been much talk about a breakup of the Eurozone countries, this in fact would be a very difficult thing to do both politically and economically and would probably have a worse outcome for all EU countries as opposed to the current situation. Indeed, it appears that whilst Germany and France’s political leaders sit around talking about austerity measures and retribution, as well as their own internal power struggles, the IMF will continue to quietly lead policy developments such as sovereign debt purchases by the European Central Bank which will lead to a devaluation of the Euro and a rise in inflation in the region. However, this in turn will hopefully aid a slow but sure recovery.
Australia
As for us here in Australia, in line with the Chinese slowdown and the impact on the commodities markets and terms of trade, I see the Aussie dollar dropping below parity against the $USD, which will certainly assist our tourism and export sectors which have been suffering of late. Interest rates will continue to fall. I predict that the RBA will drop interest rates in February and then at least a couple more times before Spring which is no doubt good news for those of us with mortgages, but not so good news for retirees and those with money in term deposits. However, on the downside, I see house prices remaining flat, albeit with a few pockets that will do nicely, despite lower interest rates and first home buyers returning to the market. The share market will remain subdued, especially since our market and indexes are dominated by the Miners. Also on the downside, business will find it increasingly tough to access credit, given our Bank’s reliance on overseas capital markets to access funding, which invariably will lead to more insolvencies and downsizing which will lead to higher unemployment.
So, all in all I think 2012 will be an interesting year and one where astute people who do their research can potentially buy well for the future. Let’s just hope the Mayans weren’t right!
Mark Lewis is the Executive Chairman of Bernie Lewis
This article is for general information only. Since everyone's personal financial situation is different this article can't be taken as financial advice. If you would like to discuss this article further or how it could relate to your personal financial circumstances please give us a call on (08) 8300-8300 so we can discuss it with you in more detail.
