As businesses wrap up 2014 and look toward the year ahead, CommSec has released its annual Big Issues report.
Chief economist Craig James’ report covers the issues it expects will influence the economy over the next 12 months.
He notes the past year has been “largely unremarkable and the coming year looks more of the same”.
Here are the trends he’ll be watching:
- Is inflation dead?
- The end of corporate pricing power?
- When will the US start lifting interest rates?
- Where should investors put their money?
- What is the ‘fair value’ for the Aussie dollar?
- Does Europe still matter?
- Home prices to slip or slump?
- What shape is the job market really in?
Here are CommSec’s forecasts.
CommSec expects 2015 to be much the same as 2014. It expects the RBA will start to lift rates in August with another hike in November.
On inflation: Confidence remains shaky and concerns about deflation are lingering. James notes that low inflation is also a consequence of a change in the commodity price cycle.
On retail: The growth of online shopping means retail businesses need to pay attention to competitors all around the world, not just in the next suburb. Retailers say it's becoming harder to pass on costs by simply upping prices; instead they've responded by improving efficiency and productivity to keep profits growing.
On US interest rates: Investors need to stay alert to the timing and size of US rate hikes over 2015.
On where investors should put their money: Easy gains in property prices look like they're behind us which means investors will have to give some serious thought to diversifying investments.
On the Aussie dollar: The RBA feels the the Aussie dollar is still too high. Measures of purchasing power parity, including the Big Mac and CommSec iPad indexes suggest that the Aussie dollar is ‘fairly’ priced in a range between US75-85c.
On global markets: The focus will be on Asia. 'The European Union accounts for 23.7 per cent of the global economy and the Euro Area 17.1 per cent, well behind emerging market and developing nations at 39.3 per cent. In 2008, the EU was bigger. In 2016, the EU will represent a smaller share of world GDP than Asia. Investors need to adjust their view.'
On the housing market: 'Over the next 12-18 months a record supply of stock will flood the market, leading to softer growth of home prices and potentially softer rents. In just four years, home building has doubled. But with the rental vacancy rate still low in Sydney, prices seem more likely to slip, rather than slump, and this will serve to reduce home price momentum in other regions.'
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