Economic overview

With the 2018 financial year having commenced, many of our customers want to know what our expectations are for the economy over this next 12 months.

With the 2018 financial year having commenced, many of our customers want to know what our expectations are for the economy over this next 12 months.

I would like to take this opportunity to share our views in relation to what's happening in the current marketplace and our predictions for the year ahead.

Let's first look at the economy. From a global perspective, GDP growth in China is solid and expectations are that GDP will hit 6.5% over the next 12 months.

That's definitely good news for Australia, because strong economic growth in China will continue to drive demand for our commodities.

In addition, we have recently seen a rebound in the cost of both coal and iron ore. That is also a positive sign, because it means we can expect strong employment growth to continue.

When we look at the United States, expectations for GDP growth are about 2.2%, which is a good sign considering that the country makes up about 25% of the world's economy.

In Australia, expectations are that we will have GDP growth between 2.5% and 3%, which is a very solid result. Importantly, unemployment is expected to remain at historically low levels - below 6%.

At the same time, business confidence has increased. So overall, there are plenty of reasons to be positive about the current state of the economy.

So what does it all mean for the housing market? We saw very strong capital growth across the housing system in Australia over this last year. To the end of the March quarter, the median dwelling price of all capitals increased by some 12.6%*.

That said, the fact is that the market is not homogenous, and different markets performed in different ways. In Sydney, we saw growth somewhere in the vicinity of 19%** and in Melbourne, we saw growth somewhere in the vicinity of 16%**.

Over this next year, we expect to see a sideways movement in the market, with property prices growing 5 to 6% - a fraction of what we've seen over the last 12 months.

Moreover, we expect markets such as the Northern Territory and Western Australia to level out and grow.

Increasingly, more and more of us are realising that we need to make provisions for ourselves in our retirement years. A number of proposed changes were announced in the Budget in May and they are currently under discussion in parliament.

Firstly, if you have been making increased contributions to your superannuation in that accumulation stage, there have been some changes in relation to the caps. Where you once were able to make a contribution of up to $30,000, that's now been reduced to $25,000 per annum.

Secondly, if you are heading into retirement, then the cap in relation to how much money you can transfer into your super at this stage in life has been set at $1.6 million.

Thirdly, if you are not in retirement, but you are looking to make some non-concessional additional contributions to your superannuation, there have been changes in that space as well.

Fourthly and finally, for those people earning more than $250,000 on an annual basis, there are some changes in terms of the concessions for contributions to your superannuation.

It's a complex environment, there are many moving parts from a regulatory perspective and what we suggest you do is meet with your financial adviser now. Check your plans, check that you are optimising the environment and that you're making adequate provisions for your future. Ensure your plans are tailored to the changes in legislation and regulation that we are seeing.

In summary, we are expecting globally a year of good growth from an economic perspective. At a domestic level, we see GDP growth operating somewhere between 2.5 and 3%, which I think is good news for all Australians. We are also expecting unemployment to remain at low levels of some 5.5% to 6%.

We are expecting modest depreciation in terms of housing. We are expecting a bit of a change in terms of the housing market, with this next period being a wonderful opportunity for first home buyers to get access to the market.

Our expectations are that the cost of money will remain at historically low levels over this period and we think it's a great opportunity for people to capitalise on that. Speak to your broker today, make sure that we ascertaining what your needs are, that we are meeting those needs now, and that we have a plan in place to deal to your needs as they evolve over the medium and longer term.

* CoreLogic Hedonic Home Value Index, March 2017 Results
** CoreLogic Hedonic Home Value Index, March 2017 Results

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