Economist predicts blue skies, no GFC ahead

Tahn Sharpe


May 15, 2018

There is little to fear in the global economy in the future, and no glaring issues that are likely to trigger a GFC-type event, CommSec chief economist Craig James said.

Speaking at a Self-managed Super Fund Association trustee event in Sydney, James said the absence of any significant imbalances has led to an “embracing of the environment right now”.

“We’re not seeing any potential imbalances like we saw a number of years ago when we had the financial crisis,” James said. “We’re not seeing imbalances in the housing market, in the debt markets or in any other market around the place.”

This glowing assessment of the landscape contrasts with more pessimistic views of local and global financial markets, given Australia’s record high household debt and the unpredictability of the current geopolitical environment.

James said the backdrop against which the government provided the Federal Budget was incredibly favourable.

“Business conditions are at record highs,” he said. He also quoted forecasts from the International Monetary Fund that stated the global economy was expected to grow by about 3.9 per cent this year and the next, which was “overall, above the longer-term average”.

The only challenge, James suggested, was that wages and prices were not increasing in line with the growing economy.

“The major reason this is not happening is because of technology and globalisation,” he explained. “The average person can buy goods wherever we want and wherever we are – we can do that on the internet. In economic parlance, what we’re basically seeing is an expansion of demand and supply.”

James noted that local companies were competing on a global scale now – the key factor holding down prices.

“For how long? No one’s sure.”

In the grand economic scheme, however, James sees more positive indicators than negative. He said interest rates were “solidly on hold” and the local currency was “probably at the right spot at the moment”.

People are finally spending after years of post-GFC frugality, although what they’re buying has changed considerably and veers towards things like international travel and eating out.

“Now the big-ticket items are restaurant meals,” James said. “When I grew up, if we went to a Chinese restaurant, that meant it was somebody’s birthday. Now it’s just lunch.”

In the housing market, while there is “a lot of activity”, James pointed to the proliferation of cranes across the city skyline as a sign that a rebalancing was in the works.

“It gets down to supply and demand,” he explained. “More supply means greater choice and less bidding up.”

In demand

The main driver of Australia’s success after the mining boom, James argued, was the strength and variety of its other exports.

“We’re exporting a lot more to the rest of the world.” James reported. “Look at the importance of China and the rise of the middle class. They’re buying our beef, our baby powder…so the outlook for the Australian economy is very, very good. We have the products that the rest of the world wants.”

Asked by an audience member if low interest rates and a favourable economic environment were causing retirees to entertain more than a suitable amount of risk in their portfolios, James again took an optimistic approach.

“It’s actually a positive thing for the economy,” he said. “It is slightly higher risk and higher return, but there are still plenty of opportunities in the environment.”

The rise of exchange-traded funds, he said, has also been beneficial to investors and provided much-needed diversity in portfolios.

“People are thinking globally,” James said. “It’s opened up some challenges and people need to think a bit more, but it has also provided opportunities.”

TOPICS:   CommSec,  Craig James,  economic outlook

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