Steady year predicted

It is customary at this time of the year to examine the consensus views of where the markets are headed as well as the economic forecasts for the next 12 months.

Having spoken to most of the economists who practise in the area of funds management, the general view that is held is that the economy in Australia is going to ride through the next year with a slowing of growth and a steady rate of inflation and therefore, steady interest rates.

The view is that the growth in the economy will be of the order of 3.5 per cent.

This is unlikely to do much for the reduction of unemployment.

Again, a generally held view is that a growth rate of about 4.5per cent is needed to make any sustainable impact on the rate of jobs growth.

Given that we are likely to come in below that rate of growth, then the prospect of substantial alleviation of the level of unemployment is highly unlikely.

The one aspect of the economic panorama that has caused the greatest divergence of opinion is the direction of interest rates.

There seems to be quite a backing for a rate cut to occur at the next Reserve Bank meeting next month.

A lot will depend on the inflation figures for the December quarter to be released this month.

The September quarter figure came in quite a lot lower than had been forecast.

The wages growth figures also were within the band of expectations as far as the RBA was concerned.

The slowing of growth here and in the US will send a signal to the RBA that our economy may need to be re-stimulated.

This could be the trigger for a reduction in rates rather than a rise in rates.

As indicated above, this will be determined to a great extent by the inflation figure for the December quarter.

Another aspect of the economic scenario that does cause some consternation and discussion is the direction and value of the Australian dollar.

There seems to be agreement that the dollar was severely oversold last year.

The dollar was seen to be improving over the next 12 months to a much higher level.

That level ranged in the estimates of the economists from a figure of 58¢ through to a much healthier 64¢.

There will be some hesitancy in forecasting the dollar because of the carnage caused in the last 12 months in currency markets.

The one pleasing thing is that the dollar was seen to be improving over the next 12 months.

For those wishing to travel this will come as good news.

So in summarising the views of the economists it would seem that the “Goldilocks economy” would continue to perform in the fashion it has for the last few years. “Not too hot, not too cold, just right!”

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