The global share markets have been extremely volatile, during the past two weeks, largely because of good news. The US economy is gathering pace and steadily growing. In late January, economic data was released, which showed the US economy grew solidly in the December 2017 quarter rounding off a strong year of expansion. Then in early February, the US Government announced unemployment was at its lowest level in seventeen years while wages had risen, at the most rapid pace in a decade, during the past year.
The fear hitting the US share market is that the economy is rapidly expanding and inflation will now begin to quicken causing interest rates to rise at a faster rate than anticipated. Higher interest rates means bonds start to look more attractive than share investments, resulting in a shift of money away from the share market to bonds.
However, a growing US economy is largely good news, as US economic growth will lift the global economy, international trade, global business expenditure, commodity prices and consumer confidence. And Australia will be a beneficiary.
Rising global economic growth and business optimism should result in rising demand for our commodities, energy, goods and services, which will boost local company profitability, business conditions, business investment and employment growth. In addition, the improvement in local economic conditions is likely to occur in a low interest rate environment. The Reserve Bank Governor Phillip Lowe this week stated while it is “likely that the next move in interest rates in Australia will be up” any increase is not likely to occur in the short term. While high household debt levels and a fall in residential construction is likely to be drag on the economy, in the next year, this should be more than offset by increased mining investment and higher government infrastructure expenditure.
Therefore, further solid growth in jobs is a solid probability, and this will push down our already low level of unemployment rate to below 5%, which should support a balanced pick-up in wages growth. The overall, result should be higher household incomes, stronger confidence and increased consumer spending for most Australians from 2019.
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