The world is full of mixed messages at present. On one hand, the Reserve Bank of Australia (RBA) says the Australian economy is performing well. Over the past year, our economy has grown by 3.4%, the unemployment rate has dropped to 5% – the lowest in six years, and forecasts for economic growth in 2019 have been revised up.
Business conditions are positive. We’re seeing strong levels of resource-based exports backed by significant public infrastructure investment, which is helping to support the economy.
So far, so good. But the outlook for the global economy isn’t as benign – and here in Australia, we aren’t immune to international pressures. So what are the potential danger zones?
The rising tide of protectionism
As the RBA noted in its November Board meeting, “One ongoing uncertainty regarding the global outlook stems from the direction of international trade policy in the United States”.
The International Monetary Fund (IMF) takes a blunter approach, pointing to US President Donald Trump’s trade wars with China and Europe as having the potential to impact global growth both this year and next.
Indeed, the decision by the Trump administration to double import duties on some Chinese goods has dragged down growth forecasts for a number of nations, including the US.
Rates are rising
Just as importantly, interest rates are rising in a number of economies, most notably in the United States.
This matters because Australian banks often source funds from offshore markets to lend out for home loans.
Already in August/September, we saw a number of the big banks announce rate hikes of their own as a result of higher mortgage funding costs.
As interest rates rise overseas, Australia could also be heading towards a higher rate environment.
An uncertain political outlook
Meanwhile, 2019 will be an election year here in Australia. That may mean significant policy changes – including perhaps a winding back of negative gearing, if Labor comes to power.
Finding certainty in an uncertain world
As human beings, we look for predictability and stability. That makes a lot of sense when it comes to planning for major milestones like buying a home, taking out a mortgage, preparing for retirement, and a whole variety of other financial decisions.
Realistically though, none of us can control “big picture” global events. So rather than worry about what you cannot control as an individual, it makes more sense to take steps to shore up your own financial position.
And there is plenty you can do to protect your financial well-being even in times when the outlook seems unclear. However, there’s no “one size fits all” strategy. The steps that are right for you depends entirely on your circumstances, life stage and goals.
If you have concerns about unfolding global events, contact local FinChoice Financial Adviser to understand what you can do to build certain plans for an uncertain world.