TRANSCRIPT
Australia has just enjoyed its 28th straight year of economic growth. The recent unexpected return of the Federal Liberal or Conservative party to power on the back of a promise of economic management has thus far had a buoyant effect, for the time being at least, on the Australian economy and has given the Government strong mandate for economic change, most recently evidenced by its sweeping tax reforms.
Australia remains cautiously optimistic, however Australia's mid-term economic outlook remains slightly mixed, a real curate's egg. Some of the challenges the Australian economy faces include:
- a mixed message in the Australian capital city real estate market, a real barometer of Australia's economic health.
- poor real wages growth over the last few years;
- historically high household debt and perhaps exacerbated by the recent reduction by the Reserve Bank of Australia over the last four months of the cash rate to a very low historically 1%;
- international trade tensions from which Australia is not immune – particularly the rising tensions between China and United States – which have an adverse impact on our agricultural and mineral exports; and
- increasing regulation from more emboldened regulators in Australia, particularly in the more recent past in the financial services sector, the largest part of Australia's economy, and potentially into other areas and other sectors of the economy.
So that means that Australia's traditional confidence is tempered somewhat with a degree of caution and conservatism.
While the Australian economy dipped slightly in 2018 it has since improved in 2019, although those Reserve Bank interest rates hint at some degree of potential weakness. Election promises, particularly in New South Wales, the most populous Australian State, and also in the Federal campaign mean its infrastructure spending will remain a top priority for Government. And even though Australia's Government debt is historically low at about 20% of GDP, most of that infrastructure spending is expected to be funded by private means.
Australia remains one of the top 10 foreign inbound investment destinations globally. By the end of 2018 over $90 billion had been invested during that year, an increased over 40% from the previous year. The United States had $36.5 billion than other traditional inbound investors – China, the United Kingdom, Singapore, Canada, Hong Kong and Japan – although some of the Chinese numbers have skewed somewhat because of the concentration in the domestic housing market. It's fair to say that Chinese inbound investment has fallen dramatically in the last two years in services, mining and retail investment.
Offshore private equity investment continues to be strong in Australia with most offshore private equity firms now firmly established or about to establish in Australia, and particularly in Sydney. They cover a wide ambit of investment sectors including the financial services sector, health, agri, mining, logistics and services.
The Australian dollar continues to hover at around about the US 70 cents mark, a devaluation of about 7% from this time last year. So while a more holistic outlook on the Australian economy continues to suggest caution, there do remain significant opportunities given the softening of the Australian dollar and just a hint of distress in the market which will go to valuation and opportunity for offshore inbound investments.