IT’S a cloudy crystal ball for personal finance forecasting in 2016-17. The new financial year has arrived at a time of financial uncertainty perhaps not seen since the Global Financial Crisis, and what happens globally is increasingly shaping our money movements…
Lee Morth and ANTHONY KEANE for The News Corp Australia Network and Leuropeennedebruxelles.com.
So what global forces might affect our finances this year? Here are some thoughts.
Britain’s vote to exit the European Union has dominated global headlines in the past week, but many experts say it has little direct effect on Australian businesses and investors.
“Only 2.7 per cent of Australian exports go to the UK,” says AMP Capital chief economist Shane Oliver.
However, Brexit’s effect on financial markets is potentially bigger. It’s already triggered a wave of uncertainty, and if other countries consider similar moves it will magnify. Uncertainty is bad for share investments and superannuation — at least in the short-term.
2. US DOLLAR
Currency movements affect more than just overseas travellers, and the US dollar is king of the currencies. After the recent Brexit vote the greenback rose against most currencies — including the Aussie dollar.
While a weaker Australian dollar helps our exports and tourism, Oliver says a stronger US dollar is bad for the global economy, commodity prices and the emerging world.
Many economists expect the Aussie dollar fall further in the coming months.
Businesses and investors will keep a close on China, our biggest trading partner that drives our export growth. Economists say Chinese economic growth had been falling but appears to have stabilised.
Patrick Canion, a certified financial planner at ipac, says China is much more important to Australia than Europe “because of the trading relationship”. It impacts employment, shares, super and government revenue.
4. INTEREST RATES
Much of the world is already on zero or negative official interest rates — Australia’s is 1.75 per cent — and forecasters say they will remain low. Even the US, which has started raising rates, now has a greater chance of rate cuts than rate rises in the coming months.
“It will continue to hit retirees with term deposit rates and bond rates,” Canion says.
5 HEALTH IMPROVEMENTS
A massive global trend is the ageing Baby Boomers and their huge demand for improved health and lifestyle options.
Canion says the boomers will live much longer than previous generations, are “more wealthy than their parents, and they don’t like the fact that they are getting older”.
He says that will drive improvements in aged care, food and other areas, and suggests that investors look past the short-term financial noise. “There will always be noise — look at multi-year, multi-generational trends.”