Economic Trends Shaping 2018

It has already been a turbulent year for the global economy, with recent stock market volatility sparking some concerns for the future. So what major factors are currently influencing the Australian and international economies – and how will these shape the year ahead? Here are some of the economic trends everyone’s talking about.

Australia’s housing market may be set to weaken

After a six-year boom, which has seen the average value of Australian homes increase by over 40 percent, the property market is starting to level out.1 Last year saw a slowdown in price growth, and this is expected to continue in 2018 due to tighter lending restrictions and housing oversupply.

Sydney has experienced the biggest market shift – with housing prices dropping 2.1% from September to December last year, and set to decline further in 2018. Instead, investors may turn their sights to smaller capital cities like Hobart and Canberra, which experienced the highest growth in the last quarter of 2017.2

Cryptocurrency is on the rise

Investors flocked to buy Bitcoin in 2017, sending its value skyrocketing. But before you jump on the cryptocurrency train, which has also experienced significant price swings, you need to understand how it works.

Bitcoin and other cryptocurrencies are essentially digital peer-to-peer payment systems that allow consumers to buy products and services online, without cash and with no involvement from banks. Because cryptocurrency isn’t considered ‘money’ and isn’t tied to a specific country, it’s largely unregulated – but that’s about to change.

The Australian Taxation Office is currently setting up a taskforce to ensure users pay capital gains tax on their Bitcoin investments. The Australian Securities and Investments Commission is also scrutinising Bitcoin usage and has developed stricter guidelines to regulate cryptocurrency trading.

Overseas uncertainties persist

The global economy got off to a rocky start in 2018, with unexpected volatility affecting share markets worldwide in February. Before these falls, however, investment, manufacturing, commodities and trade were all picking up, and growth was forecast at above 3%.3 As volatility is a natural part of the market cycle, the economy has already started to rebound.

Geopolitical risks also spiked during the last year in the wake of Donald Trump’s presidential win and the UK’s historic Brexit vote. And while global policy is becoming more certain in the United States and Europe, we’re yet to see how international tensions with North Korea will play out.

More Australians are dipping into super early

In the 2016–17 financial year, Australia’s Federal Treasury reported that $290 million was released early from superannuation on compassionate grounds – up from $42 million in 2000–01. Of more than 21,000 applications approved in 2016–17, around 15,000 were requesting an early release for medical reasons.

The average amount released was $13,644. This trend reflects the rising out-of-pocket costs for healthcare and the importance of preparing financially for unexpected medical issues. The purpose of super is to fund your retirement lifestyle, so before you find yourself having to dip into your savings early, speak to your financial adviser about ways to keep your nest egg secure.

1 CommSec, Economic insights, January 2018.

2 CoreLogic, Hedonic Home Value Index, January 2018.

3 World Bank Group, Global economic prospects, January 2018.

 

IMPORTANT INFORMATION

This document has been prepared by Rowland Financial Advisory Pty Ltd ABN 66 163 488 480 who is an Authorised Representative of Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138. Information in this document is based on regulatory requirements and laws, as at 1 July 2014, which may be subject to change. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. Taxation considerations are general and based on present taxation laws, rulings and their interpretation and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.