TMA Australia held its annual
“Economic Outlook” events in Sydney on 6 February. In Sydney, over 170 guests
attended.

James Simpson (Gresham Capital Options) from the NSW TMA Committee has prepared the following summary. We also refer you (photos) from the Sydney event.

The discussions focused on global
and domestic economic trends and potential monetary and fiscal policy
responses.

Some of the key themes were:

The world is going through an
historic period of volatility.
Geopolitics, climate, epidemics. We live in increasingly uncertain times.

Interest rates are low for long. Real interest rates have been on a long downward trend
globally for centuries, and today we have historically low rates. While the
effectiveness of monetary policy today is evidently limited, central banks are
expected to keep rates low for the foreseeable future.

Australian private domestic demand
growth is weak. Australian consumers are
experiencing low wage growth, high private debt levels and high cost of living
for essentials, all of which is pressuring private consumption growth. At the
same time, business investment has been weak and housing activity has shrunk
(the recent turn in housing prices may see growth in housing activity resume).

Key takeaways:

1. The most likely outcome for the Australian economy in 2020 is continued moderate growth
2. With inflation being persistently elusive, the RBA is expected to cut rates twice this year to a historic low of 25 bps. While the RBA has given thought to how it would implement quantitative easing, it is not expected to occur in 2020
3. The risks to global growth remain on the downside with trade and coronavirus as two areas of particular uncertainty
4. Expected growth in the domestic economy is based on a turnaround in dwelling and business investment, both of which are uncertain, and consumption growth could be dampened if consumers focus on deleveraging household balance sheets
5. The bushfires and coronavirus are two unexpected developments at the outset of the year. While the bushfires have devastated many lives and communities, they are unlikely to have a long-lasting impact on the economy. The coronavirus will have at least a short-term impact on China and may affect the global and Australian economy significantly – although it is challenging to quantify the impact at this time
6. Trade tensions have diminished since last year, but a comprehensive trade deal between the US and China has not yet been achieved. This is an ongoing source of uncertainty globally
7. The Australian dollar is not expected to move significantly over the year, although could face depreciation if the coronavirus develops into a more severe situation
8. With the effectiveness of monetary policy diminishing, there was consensus that a fiscal policy response would be appropriate and beneficial, albeit unlikely given the political dynamic