This economist reckons we’re on the up and up.
We ended 2022 with a number of dark clouds circling the economic horizon. There were good reasons to be fearful. Good reasons to be cautious.
However, through the second half of last year I consistently argued that when you get under the hood and look at the economic fundamentals, Australia is very strongly positioned.
Shane Oliver at AMP – who is now one of the grey-beards of Australian economics – agrees. He reckons there’s nine reasons to be optimistic about the year ahead:
- Long term inflation expectations remain low
When it comes to inflation, expectations matter, because that’s what businesses and consumers make their pricing and consumption decisions on. And on that front, while the current burst of inflation is painful, no one really expects it to last.
(They’re probably right.)
- Inflation has likely peaked
AMP’s pipeline indicator, and a number of other indicators seem to be telling us that inflation has already peaked. In fact, we might be looking at a sharp drop off from here. This should take the pressure of household budgets and reduce the need for more aggressive rate hikes.
- Key central banks are close to done
With inflation peaking, Oliver reckons it’s likely that central banks are close to the end of their hiking cycle.
- China’s move away from zero Covid will provide an offset to weaker US and European growth.
China is still one of the global economy’s key pistons. It’s good news, especially for Australia, if that piston starts firing again.
- The US dollar looks to have peaked
This take the pressure off emerging economies, which still largely issue debt in US dollars.
- The worst of Covid is behind us.
- A less aggressive RBA should help us avoid recession.
(Looks like we’re going to nail that soft landing after all.)
- Geopolitics may not be as threatening.
Strong-man authoritarians are on the nose. Democracy is back in vouge. The war in Ukraine is still a tragedy, but it feels like it’s a more predictable tragedy these days.
- While US mid-term election years are often poor for shares (as seen in 2022), the 12 months after the US mid-terms is normally strong.
And where US markets go, Aussie markets follow.
I’d agree with all of this. I actually think we’ll wake up in the first half of the year and everyone will realise that things are going great guns.
The economic fundamentals will reassert themselves, and it’ll be off to the races.
We’ve had a very bumpy ride these last few years. We got used to it. But there’s no reason it will continue.
The sun will shine again.
And sooner than people think.