How will Australian economy go in 2020 ?

What does 2020 hold in store ?  Can ScoMo's economic brilliance take us through unscathed ?


Finance in 2020: What to expect
 By Emma Duffy on January 06,2020



Photo by Yeshi Kangrang on Unsplash

What's in store for 2020? We take a look into our financial crystal ball.
2019 was a turbulent year for the Australian economy, with three rate cuts bringing the cash rate to a historic low of 0.75%. With borrowing cheaper than ever, house prices recovering, and fintech shaking up the industry, there are plenty of changes afoot in Australian finance. 
As we roll into the early days of a new decade, here's some of what you might expect to see this year.

1. More first home buyers entering the market

Despite being met with some criticism, the First Home Loan Deposit Scheme has kicked off. 
This scheme will help eligible first home buyers secure a home loan with as little as a 5% deposit while saving them from paying thousands for Lenders Mortgage Insurance (LMI) - which is typically required for loans with a deposit of less than 20% - with up to 15% of the property's value guaranteed by a government entity.
To be eligible, first home buyers have to earn less than $125,000 a year, or $200,000 combined for couples. To ensure it is only used for the purchase of an entry level home, the scheme is limited to properties priced under the set limits for each state and territory.
The scheme is also limited to 10,000 home loans per financial year - quite a small number, considering there are over 100,000 loans granted to first home buyers per annum.

2. House prices continuing to rise 

Property experts love to predict a boom and the conditions in 2020 seem ripe for rising house prices. House prices finished 2019 on a high with the national average lifting 2.3% over the year.
CoreLogic's Head of Research Tim Lawless expects house prices to rise in 2020 before slowing down.
"Housing values are expected to rise through 2020 across most regions, however, the year may bring about a change in the growth dynamic with the larger cities seeing a slowdown in the rapid rate of growth recorded through the second half of 2019," he said. 

3. Rock bottom interest rates

The Reserve Bank has signalled it will lower the cash rate in 2020, with most economists predicting a February rate cut and possibly another after that, bringing the cash rate to a rock bottom low of 0.25%.
If the cash rate falls this low, expect home loans to fall well below the current low borrowing costs we're seeing below. 

4. More customers turning to neobanks

What's a neobank you ask? In a nutshell, it's a type of bank that lives entirely on your smartphone with no branches or the sort of online banking most traditional banks offer. Because they don't have the overheads a traditional bank does, they can pass these savings onto you in the form of better interest rates and lower fees.  
Over 2019, Australia's neobanks were mostly focused on offering high-interest savings accounts, but 2020 could see more neobanks begin to offer competitively-priced home loans. 

5. Open banking finally kicking off

Initially set for launch in February, open banking has been pushed back to July.
When it does launch, Australian consumers could have more control over their financial data, choosing how their data is shared and who with. It is expected to make it easier for people to switch to a better bank or lender, thereby encouraging more competition between banks and providers who will have to work even harder to offer their customers the best deals.

6. Rising insurance premiums 

Australia has been ravaged by bushfires over the last few months, and with the number of bushfire-related insurance claims climbing, pressure is mounting on home insurers to lift their premiums. 
According to the Insurance Council of Australia, over $238 million worth of damage has already been logged since early November in 3,870 claims from 236 postcodes around the country. The number of claims is only expected to rise as the blazes continue to burn.

7. Continued slide in new car sales

If new car sales are the barometer of economic health, our economy is falling into the toilet. New car sales drove off a cliff in 2019 with just over 1 million new vehicles sold in 2019 - the lowest annual car sales figure since 2011.
It's likely our new vehicle market will face similar challenges in 2020, with the possibility of a recovery.

8. Flat employment and wages growth

Wages growth has slowed to a halt over the last few years, and is likely to remain low for most of the year thanks to the softened economy.
It's a similar story for the jobs market but if the economy starts performing after the rate cuts, the unemployment and underemployment rate could head lower which should drive up wages.

9. Volatile share markets 

With interest rates at record lows, many are expected to turn to the share market in the hope of making a half-decent return on their money.
Globally, 2020 is expected to be another volatile year for the share markets with Trump seeking re-election, the potential for a US-China trade war, worries over the risk of a global recession, and the continuing uncertainty around Brexit. 

https://www.savings.com.au/home-loans/australian-economy-and-housing-predictions-for-2020

[size=32]What's ahead for the Australian economy and markets in 2020[/size]


Stephen Koukoulas
Yahoo Finance AU2 January 2020







From the jobs market to the Aussie dollar, this is what 2020 will look like for the Australian economy and markets. (Source: Getty)


Happy New Year!
2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.
It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community. 
2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target.

• Also read: The Australian and global investment outlook for 2020: What to expect
  
• Also read: Then, now and in the future: A glance at Australian property in 2019
  
• Also read: Career expert reveals 5 predictions about the job market in 2020
  

The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.
The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.
In terms of the specifics, I have broken down the 2020 outlook into a range of categories and given a broad explanation on the issues underpinning the themes outlined.

GDP Growth

It’s a positive outlook. A pick-up in GDP growth from the current 1.7 per cent annual rate is unfolding, with the only real issue is the extent of the acceleration.
On balance, annual GDP growth is set to pick up to around 2.5 per cent by the middle of 2020 and is forecast to hit 3 per cent by year end.
Contributors to the better economic performance include public sector spending, including on infrastructure, a moderate increase in business investment, an upturn in dwelling investment in the second half of the year and a moderate 2.5 per cent lift in household consumption aided by a positive wealth effect (house prices) and savings that are able to be deployed for spending. The risk favours GDP growth exceeding 3 per cent by year end.

Jobs market

The labour market is set to remain problematic in the first half of the year, hindered by the ongoing below trend growth rate and signs in the leading indicators for labour demand which are universally negative. As a result, annual employment growth is set to weaken to around 0.75 per cent in the first half, meaning average monthly job increases of around 10,000 only. The unemployment rate will be nearer 5.5 per cent than 5.0 per cent.
As the economy improves through the year, the unemployment rate should start to head lower, perhaps a tick or two under 5 per cent by year end. With the unemployment rate stuck above 8 per cent, an acceleration wages growth will remain elusive through the year.
Only when the unemployment and under employment rates fall below 5 per cent and 7.5 per cent, respectively, is it reasonable to expect wages growth to exceed 2.5 per cent.

• Also read: Career expert reveals 5 predictions about the job market in 2020
  

Inflation

Inflation will remain low for the bulk of the year, hindered by the soft economy. Only late in the year, if the economy performs as expected, it is likely to hit 2 per cent. Until then, it is set to remains a few ticks around 1.75 per cent in annual terms which of course is below the RBA 2 to 3 per cent target.
For inflation to reach or exceed the mid-point of the target, GDP growth needs to exceed 3 per cent, with wages growth above 3.25 per cent for a sustained period.

Monetary policy and bond yields

The economic scenario means the RBA may cut interest rates one final time, early in the year, but even that cut below 0.75 per cent is by no means certain. Perhaps this final rate cut is after another low inflation reading.
That said, signs the broader economy is improving will mean the RBA could be reluctant to cut further and by around the June quarter, it will (finally) have its broader view validated by more positive news, particularly in business investment and a bottoming in the dwelling investment cycle.
While it would be folly to assume any interest rate hikes from the RBA during 2020 (or would it?), after such a protracted period of low growth, inflation target misses, it would not be surprising to see the market flirt with interest rate tightenings priced into 2021.
The chances of the RBA implementing some form of quantitative easing remain low.
The call on the bond market is more straight forward – yields higher. At the time of writing, the 3 year yield was around 0.85 per cent, with the 10 year at 1.30 per cent. Targets are somewhat meaningless when looking for an enduring market trend to unfold, but it would be no surprise to see the 3 year get near 1.25 per cent, perhaps 1.5 per cent during the year. The 10 year is forecast to approach 2.0 per cent or more.

House prices

The surprising recovery in house prices from the middle of 2019 will likely continue, although the power of the price rises will fade somewhat during the year. A nationwide price rise of 7.5 per cent for 2020 seems a cautious forecast with the bulk of the rises seen in the first part of the year.
Of course there will continue to be considerable divergences from city to city, town to town. Perth is poised to register a decent rise, perhaps 10 to 15 per cent as a shortage of dwellings becomes apparent and the mining sector looks to increase its investment spending.
Sydney and Melbourne will likely register solid gains for the year of 6 to 8 per cent while Brisbane, Canberra and Adelaide will be more constrained. Hobart, having been a strong market in recent years, is likely to continue to do well – a tight market supply will be a boost for prices.
The interesting issue will be nearer year end if there is talk that interest rate increases are in the offing – will that hit confidence in house prices? I suspect the price surge will moderate in any even in late 2020.

• Also read: Then, now and in the future: A glance at Australian property in 2019
  

US stocks

It’s election year and having had a huge run up in share prices in recent times, a decent pull back is likely. This is forecast to be fundamentally driven by the US Fed close to the end of its interest rate cutting cycle and the prospect of a change in President impacting investor sentiment.
If there is a real chance that some of the absurd tax breaks put in by the Trump administration are likely to be reversed, share prices could register meaningful declines of 15 to 20 per cent. At the time of writing, the S&P500 was around 3,240 points – a dip below 3,000 is feasible, with a move towards 2,900 likely in the event of a hawkish Fed and a progressive President.

• Also read: The Australian and global investment outlook for 2020: What to expect
  

The ASX

The ASX had a good 2019 and should consolidate in 2020. It will be helped by a solid commodity cycle and much of the ‘bad news’ priced into the market dominant banks. At the time of writing, the ASX 200 was around 6,770 points and it is set to break above 7,000 in the first half of 2020.
Any negative lead from the US will filter into the local market which means that little net change is likely over the course of the year as a whole. Year-end target 6,750.

The Australian dollar

The Australian dollar is kicking off 2020 on a more positive tone close to 0.70 cents. Expectations of a lift in global economic growth and improving domestic conditions are positive for the dollar. Throw in a scenario where interest rates will be edging up from current pricing, a huge international trade surplus and ongoing buoyancy in commodity prices and the scene is set for Aussie dollar gains.
It is not unreasonable to expect the dollar to trade above 0.7700 during the year, with more upside risks if the economy is sufficiently robust to see the market price in even modest interest rate increases.
Good luck – and may the markets go your way.
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https://au.finance.yahoo.com/news/australian-economy-markets-2020-230746891.html

Risks facing Australian economy in 2020

By AAP 8:00am Jan 8, 2020

 

KEY RISKS FOR THE AUSTRALIAN ECONOMY IN 2020

* ECONOMY
The Australian economy posted its worst performance since the global financial crisis during 2019, hit by drought, weak consumer spending, sluggish business investment and a slowing global economy. As of the September quarter, annual growth was running at 1.7 per cent, well below the long-term trend at 2.75 per cent. Treasurer Josh Frydenberg was forced to cut his 2019/20 growth forecast to 2.25 per cent. While economists are expecting a gradual grind higher during 2020, the recovery may not be fast enough to prevent unemployment rising.

* LABOUR MARKET
After dipping to a nine-year low of 4.9 per cent early in 2019, the jobless rate has gradually increased to 5.3 per cent. Treasurer Frydenberg now expects the unemployment rate will be 5.5 per cent this financial year and next. The Reserve Bank wants to see it closer to 4.5 per cent to help lift sluggish wages growth. But a slump in job advertising over the past year and slow economic growth suggest the unemployment rate could go even higher.


* INTEREST RATES
The Reserve Bank cut the cash rate three times during 2019 to record low 0.75 per cent and appears ready to take further action in the new year. RBA governor Philip Lowe has flagged that once the cash rate reaches 0.25 per cent, unconventional forms of monetary policy will be considered if there isn't a drop in the jobless rate and inflation remains below target. This could come through quantitative easing, where the central bank buys government bonds and other securities to pump money into the economy.


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* CONFIDENCE
Interest rate cuts and reductions to personal income taxes have failed to lift the mood of consumers, who appear more content in paying down debt and saving rather than spending the increase to household incomes. Business confidence is also weak as business conditions struggle below average, raising the risk of slowing employment growth and continuous sluggish business investment.


* GLOBAL ECONOMY
Global financial markets look set to end 2019 on a positive note having received an 11th-hour lift from the first phase of a US-China trade agreement and the likelihood of Britain finally leaving the European Union early next year following the UK election to end on a positive note. The trade wars between the world's two biggest economies and Brexit have been key factors behind repeated global economic growth downgrades by the IMF and OECD.


* BUDGET
Josh Frydenberg was on course to be the first treasurer since Peter Costello 12 years ago to return a budget surplus. But he and Prime Minister Scott Morrison have abandoned this in response to the bushfire crisis. The federal government has committed $2 billion towards a recovery fund, which is not enough in itself to send the budget into deficit. However, the government cannot quantify the bushfires' overall impact on the economy. The blazes are expected to affect consumption, economic growth and tourism numbers. The bushfires have also dealt a cruel blow to the farming sector, which has already been crippled by drought.


* CREDIT RATINGS
Global credit rating agency Standard & Poor's confirmed Australia's AAA rating following the mid-year budget review. But it has previously warned the rating would be at risk if the government is forced to significantly boost spending to stimulate the economy and change the trajectory of the budget. A downgrade would result in banks paying more for funding in overseas markets and potentially forcing them to raise interest rates at the worst time for the economy. It would also be a big hit to confidence and for the government.
:copyright: AAP 2020


https://www.9news.com.au/national/risks-facing-australian-economy-in-2020/76b8a684-9157-46d9-94a6-26e8633dfea0