Director’s Perspective
By Noel Hucker
With 2013 drawing to a close we’d like to thank you for your ongoing support of our business. The team at Harvest wishes you and your family a very happy holiday and a prosperous 2014. We look forward to working with you again in the New Year.
In our newsletter this month we reflect on Australian and US economic conditions and the outlook for 2014. We also provide an overview of where we currently are in the investment cycle.
Current Economic Conditions and Outlook into 2014
Australia
This year 2013 saw the Australian economy achieve is 23rd consecutive year of economic growth, the only developed economy in the world which can boast such an impressive record. Despite this, with the mining industry shifting from the construction and investment phase to the production phase, and conditions in non-mining sectors remaining soft, economic growth in the Australian economy has begun to slow down.
The September quarter of 2013 saw the rate of economic growth fall to a two year low of 2.3% per annum.
The year 2013 also saw the Reserve Bank of Australia (RBA) cut the official cash rate twice, dropping it to a record low of 2.5%. In the presence of a high Australian dollar, money supply and credit growth, the RBA believes low cash rates to be the best policy for now. Underlying inflation is sitting at 2.3% pa as at the 2013 September quarter – well within the RBA’s target band of between 2% to 3% – and we believe that the RBA is likely to keep the cash rate on hold at 2.5% for the best part of 2014.
The Australian dollar has experienced great volatility during 2013, beginning the year above parity against the $US, before falling by 15% between April and August, reaching a low of $US0.89 in the last week of August. The $A then recovered on the back of a decisive Federal election result and strong economic data both domestically and from China; reaching a height of US$0.96 in October 2013. The $A has begun to retract once again this month, and after an announcement that the US Federal Reserve will begin to taper its Quantitative Easing programme in early 2014, fell to $US0.89 at the time this newsletter was published.
A decisive Federal election result in early September 2013 has triggered improvements in key economic confidence indicators. Both business and consumer confidence indicators for December 2013 are significantly higher than their lows of 2 years ago with the NAB Business Confidence Survey showing business confidence at a positive level for the first time since 2010.
Employment growth still remains low with the unemployment rate reaching 5.8% in November, almost equalling the peak unemployment rate during the GFC of 5.9%.
We expect that the pace of economic growth in Australia will increase slightly into 2014, and that global economic growth will return close to normal trend levels.
Business confidence has recently been showing promising signs of recovery and we expect this to continue into 2014.
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Our forecast is that economic growth in 2014 will increase slightly to an estimated 2.5%, which, while positive, is still a below average result.
United States
The US economy experienced slow, but none-the-less positive growth during 2013, giving it it’s third successive year of growth.
Unemployment in the US has fallen to 7.2%, its lowest level in five years. While this is a positive sign for the US economy, this headline figure masks some potential areas of concern. While employment numbers have increased, the participation rate has fallen, hitting 62.8% in October, its lowest level since 1978. In addition, many of the jobs created have been part time or temporary.
Difficult political and fiscal circumstances have been a major factor in slowing growth in the US. The 16 day US government shut-down in October caused the economic growth rate to fall to 2% for the final quarter of 2013, a much lower rate than the 2.5% predicted by many economists before the shutdown.
The US Federal Reserve has announced it will begin slowly tapering its Quantitative Easing programme in January 2014, indicating its belief that economic conditions are set to remain positive in 2014 and we expect this to result in a continuing positive economic growth rate in the US throughout 2014.
Investment Cycle
Where are we currently at?
The investment cycle has stayed in overheat for a third consecutive month as fiscal and monetary policies are expected to assist positive economic growth in 2014. The prospect of good growth and falling inflation has seen the cycle begin to turn towards recovery, a part of the cycle which favours equity investments.
Investment Cycle Chart
Prepared by Harvest
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