The year started with some turbulent economic activity in the local and international spheres, including a falling Australian dollar, local share market falls and the slowing of the Chinese economy. We run through the economic situation of early 2016.
The first 16 trading days of the year until 26 January saw the All Ordinaries Index fall by 5.4%1, concerning both investors and consumers. This reflects some of the issues in the commodities market, where export prices for iron ore, coal, wheat and oil have continued to slump. Commodities account for over 50% of the country’s foreign earnings, compounding the impact on the share market and our foreign balance of trade.
On the positive side, consumers are enjoying lower petrol costs, but for those who rely on their superannuation this year looks less rosy. The drop in the share market will contribute to declining growth rates in superannuation funds, a trend that has been ongoing for the past three years, and one that is likely to be seen for the remainder of the year.
Exports will find some relief in the lower Australian dollar, which has devalued against the US dollar by over 2.8% during the month of January2. This is also good news for education and tourism, as more foreign students and visitors flock to Australia. Those planning overseas travel will feel an extra pinch in their hip pocket.
One of the key issues believed to be triggering many of these macro-economic issues is a slowdown in the Chinese market, with manufacturing and consumption both down in the world’s second-largest economy. China is a key trading partner for Australia and a reduction in consumption there is having a direct impact on our exports. But the weakening in its market isn’t just being felt at home. The International Monetary Fund has indicated that China is to blame for its reduction in global growth forecasts. Things may also get worse before they get better, due to uncertainty about whether the Chinese government is masking the true economic situation in the country.
Despite low growth, the employment outlook is still positive, with the unemployment rate at the end of December remaining low at 5.8%3.
Forecasts expect it to remain relatively constant for the next quarter. Low growth tends to go hand in hand with low interest rates, which is good news for home owners. Combined, this offers a silver lining to the economic clouds that shadow 2016.