Economic Update

Posted on 01. Feb, 2010 by in Financial Planning, LifeStyle Planning

The third quarter could be seen as the time when the global recession ended. The UK came out of its downturn, as did the US. This followed France, Germany, Hong Kong, Japan, Singapore and Thailand which left the downturn behind in the second quarter. Australia fared much better than most, avoiding a recession in statistical terms.

The world economy is certainly heading in a better direction than it was over a year ago, when Lehman Brothers had just collapsed.

Most politicians and central bankers will want to see their economies back to full health, especially reduced unemployment, before easing support measures. Finance ministers from the 20 leading industrialised nations said just last month that interest rates would stay low for the foreseeable future. That introduces the risk that too much money will be left in the system for too long, stoking inflation.

There is already talk of central banks increasing interest rates soon in some countries, to ensure the pendulum doesn’t swing to excess growth and subsequent inflation. Australia has already increased rates over the last couple of months.

We believe that the Australian stock market is in a recovery phase and the sectors that tend to do best in this environment are sectors like retail, media, housing and diversified financials. These were also some of the sectors that were hit hardest in the downturn and we see their earnings recovering the strongest coming out.

If the improving economic trends continue and we experience low growth, coupled with low inflation, and low interest rates, this is what some would consider the ‘Goldilocks’ scenario; not too hot, not too cold – just right to allow the economy, companies and therefore, markets to grow steadily.

Source Fidelity International December 2009.

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