The year that will be

Andrew Pegler – 29 December 09

As they say get two economists in a room and you’ll get ten different answers to the same question. But what the heck, it’s the time of the year to gaze into the crystal ball, read the tea leaves and pore over the goat entrails to boldly predict what lies ahead for 2010.

The recession was less disastrous than many feared but I reckon its aftermath could be more dangerous than many expect. For starters ending the fiscal and monetary stimulus will be much harder than starting it. Plus, with so much stimulus slashing about the globe inflation may blow out. But let’s steer away from Armageddon talk and take philosopher Frederick Nietzsche’s advice and don’t stare into the abyss for too long or it may start staring back.
With so much of global demand still dependant on government support, the global stability we have ended the year with will remain fragile plus we haven’t really addressed the problems in the financial serves sector that started this whole mess.

Moral hazard will become a big issue over the year as banks bounce back and start to take on risk again. And don’t worry if you don’t know what moral hazard is as I plan to give it the plain English treatment early in the New Year.

Large household debt and busted banking systems across the world will keep demand in the industrial west pretty weak. This of course affects the demand for widgets from the emerging economies, like China which also faces a housing bubble fuelled by loose monetary policy.

The share market will continue to grow as the world dusts itself off and gets back on the horse but not at the same pace. I predict ours will grow by 15%. If not I predict I will blame my failure on a typing error.

Gold will lose its lustre as the US economy picks up and dips below US$1000 an ounce.

The Reserve Bank won’t lift rates in February but will in March by 25 basis points. And official interest rates will sit between 4-5% by year’s end.
Unemployment will be gripped by the gravity of recovery and only go down from February to be 5.3 % by year’s end. On the subject of the RBA, I also predict Governor Stevens will not join the Spice Girls as “Banker Spice”.

Australia will emerge as one of the best economies around and seeing this Russia will buy Australian treasury bonds to augment its foreign reserve. Nostrovia!
Companies reporting in February for the second half of the year will surprise us with good results and strong forecasts sending the $AUD back up past 90c for a bit.

And yes folks it’s a federal election year so get ready for baby kissing, bold statements and a lot of blah, blah, blah. Climate change will be the key issue and Kev will take an ETS to the electorate seeking our thumbs up which he’ll probably get. Sorry Tony.