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Yesterday, the BlueChip team and a selection of our clients attended the annual Financial Standard Chief Economists Forum where a panel of high calibre local and global economists regaled us with their views on what lies ahead this year.
The predictions came thick and fast as each economist stated his or her case in a 10-minute timeframe.
Dr Bob Baur, Chief Global Economist, Principal Global Investors, kicked off the session with his picks for the impact economic players for 2014. He foresees a profound economic shift between the US and China, as the pendulum swings back in favour of the US. According to Dr Baur, the US economy is looking to (finally) pick-up steam this year as it recovers from “post crisis lapse disorder”, with above trend economic growth likely toward the end of the year. Factors contributing to growth include resolving the fiscal tax cliff, better than expected job growth and moderate growth in consumer spending. With a soft landing underway for China, it will remain a dominant economic player, but the recent boom years and their double digit growth are on the way out. As for the vexed Eurozone, Dr Baur believes we should see it stabilise by mid-2014. While this sounds promising, he did add the caveat that a long-term solution for Europe’s economy was dependent on major political change.
The other international panellist was Dr Christopher Probyn, Chief Economist, State Street Global Advisors, who echoed many of Dr Baur’s sentiments. In a refreshingly rather upbeat prediction he dubbed 2014 “a year of improvement”. He sees developing economies, such as China, stabilising and advanced ones, such as the US, gaining traction. Like Dr Baur, he also believes Europe is emerging from recession, but warned that sustained improvement is unlikely. Describing it as “a running sore that doesn't heal”, Dr Probyn believes the Eurozone issues stem from a mismatch between its various constituent economies. So, for example, he cites Germany’s 20% growth in production, compared to a drop of 10% in France and 20% in Italy, as coming at the expense of its major trading partners, hollowing industry in other EU economies.
Closer to home, it seems that 2014 will call for a balancing act for Australia’s economy, as we battle with the slow-down of the mining boom and rising unemployment.
While 2014 doesn’t look overly grim, Richard Gibbs, Chief Economist, Macquarie Group Limited, said that restoring Australia’s ‘mojo’ will be pivotal for confidence and prosperity in 2014. We are still searching for a “new GDP growth champion” now that the mining boom is slowing. According to Mr Gibbs this new champion may very well be housing construction. While Australia’s economy continues to rebalance, he believes that policy leadership will be essential to restoring our competitive edge.
Monash University professor of economics, Rodney Maddock, agreed that the unravelling of the mining boom would make Australia poorer but that growth in sectors such as construction will help ease the burden somewhat as we transition to a non-mining led economy. He also pointed out that depreciation of the AUD would also weaken the impact as it boosts exporting industries.
To add to what is shaping up as a challenging year ahead for Australia, Economics Editor at The Australian, Judith Sloan, gave a grim outlook for employment, claiming unemployment could rise above 6% in the coming year. A combination of the winding down of the mining boom and less public sector spending, in conjunction with damage to export industries sustained due to a high AUD over recent years has created uncertainty about prospects for job creation. Ms Sloan also conjectured that the Fair Work Act might also be impacting the labour market curtailing investment in certain sectors because of the re-regulation of the labour market. She questioned whether the Abbott government has the political will to address regulation. In her view, if it doesn’t, the medium- to long-term outlook for unemployment could rise well above 6%.
It was a lively and enlightening discussion to set the stage for 2014. Only time will tell if the predictions will come to fruition in the coming year.
