It’s now coming up to six years since Greece first revealed that it had understated its true level of public debt. Greece is now rapidly approaching another moment of truth, and this has been causing increasing angst in investment markets with the risk of more to come.
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US Q1 GDP growth of only 0.2% annualised was weaker than expected. Expectations of Fed Funds Rate lift-off have been pushed back in line with moderating growth expectations. April saw a pick-up in employment growth and solid retail trade data.
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Way back in the early 1980s it was pretty obvious that the medium term (five year) return potential from investing was pretty solid. As it turns out most assets had spectacular returns in the 1980s and 1990s. This can be seen in returns for superannuation funds which averaged 14.1% in nominal terms and 9.4% in real terms between 1982 and 1999 (after taxes and fees).
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April saw some reversal of the recent dominant trends on financial markets, with commodity prices bouncing off recent lows and longer term interest rates moving higher.
This reflected a slightly more optimistic outlook for global economic growth.
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Please click on the links below to view summaries of the 2015 Federal Budget.
The iron ore price fell by 47% over the course of 2014. It has fallen a further 25% since. At the company level this means lower profits and capital expenditure, job cuts and lower wages. The economist might express it this way: lower commodity prices flow into Australia’s Terms of Trade, which are now down 26% from the peak in the September quarter 2011.
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The case for the RBA resuming interest rate cuts this year has been fairly clear: commodity prices have fallen more than expected; the $A has remained relatively high; while residential construction and consumer spending are okay the outlook for business investment has deteriorated pointing to overall growth remaining sub-par; and inflation is low.
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Despite fears that healthy levels of economic growth in the United States would lead to increased interest rates, the low interest rate environment across the globe became further entrenched last month. With the absence of any tangible sign of inflation, bond yields declined again over March.
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Economic growth in Australia has continued at a subdued rate. National Accounts data for the December quarter showed that Gross Domestic Product expanded by just 0.5% over the 3 month period. In annual terms, the current growth rate of 2.5% remains below the longer term trend rate of over 3%.
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The perpetual China worry list remains and recent Chinese data has been on the soft side. But last year Chinese shares were among the world’s strongest. What gives? Is China on the brink of a boom or a bust? Probably neither.
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