It’s been a big year for Australia as the Government’s budget scared the heck out of people and knocked consumer confidence for six.
This ultimately scared business back into its shell, meaning the “animal spirits” that RBA Governor Glenn Stevens has been yearning for are sadly lacking in the economy. As we prepare to face 2015 the outlook is more weakness, and maybe even an RBA rate cut in 2015.
But it wasn’t all the Government or Australia’s fault.
Iron ore has crashed as the big miners chase the little guys to the brink. Chinese growth is inevitably slowing, and the global disinflation trend reinforces the providence of saving – or investing in non-productive assets like stocks – over consumption and investment in productive capacity.
But with the Fed on a tightening cycle at least the US economy is healing.
Here are 12 charts we think shaped 2014 and will influence 2015.
The price of iron ore crashed as production has come online and ramped up. The Australian government has $60 a tonne penciled in for the next two fiscal years.
It's not just the government who suffers. Junior miners such as Atlas Iron have seen their share price crash under the weight of the fall in iron ore as it approached, and in some cases fallen below, the cost of production.
Sure, national income is down because prices have fallen more than volumes have lifted, but demand remains high from China and Port Hedland is not far from record production.
RBA Governor Stevens is right: the ToT suggest the Aussie dollar was too high, and is still too high. The NAB reckons its headed down to 75 cents on the back of this fall.
The US dollar's rally is at an important juncture, suggesting the Aussie might find support above 80 cents.
Like Shanghai stocks the US dollar has had a great 3 months but it has hit levels not seen since 2006 in dollar index terms. That means much is already priced into the market and maybe the big dollar and the Aussie might not act as everyone expects, at least in the early part of the year.
The Australian stock market is lagging badly when judged against big markets like the S&P 500, weighed down by a weak economy, the miners and banks, which might have seen the top of prices for a very long time.
Westpac's excellent Redbook summarises the consumer mood perfectly each month but the bad news is that consumers are gloomy and not wanting to spending. Westpac is still forecasting a rebound but that would mean its own indicator isn't working anymore.
When even tradable inflation is pointing down, regardless of a big crash in the Aussie Dollar, you know that aggregate demand in the economy is not strong. This is a sure sign that the RBA could cut rates in 2015.
The Australian Government, in it's MYEFO document, has Chinese growth falling to 6.75% in 2015 and 6.25% in 2016. That's low. According to this chart from UBS Australian growth is under pressure too.
Westpac's excellent China commentator is always ready to debunk a myth on the Asian giant and in one of the best quotes of the year, Phat Dragon rounded out 2014 saying that 'China is a poor candidate for both a typical EM crisis and a typical advanced country crisis. While China certainly exhibits enough of the fundamental characteristics seen in some prominent past catastrophes to give even a myopic optimist pause, equally, the number of major caveats and exceptions should likewise chip away at the dramatic conclusions reached in the bear-o-sphere.'
The crash in crude reflects a lack of demand and some new supply from US shale but it's a good thing for the global economy longer term as it effectively gets a huge stimulus from lower costs. Now if someone would just tell the Petrol stations where I live.
The Fed has signalled it is going to hike rates next year. Usually that means that stocks will react badly. But as Business Insider US managing editor Henry Blodget wrote recently - that doesn't mean stocks will crash in 2015. Indeed a number of analysts are looking for another year of double digit returns. However, another year or two down the track things might be different.