The Loewy Blog Edition 14 - January 2017

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The Loewy Blog Edition 14 - January 2017

As the new calendar year begins we have reviewed the consensus of prominent economic forecasters and enclose their and our predictions for the 2017 year, along with the forecast. As we go into the new calendar year, we are in a period of flux.

Is the Trump bump receding in stock markets?

Where are interest rates and currency going? We will try to address these issues below:

The Australian economy appears in reasonable shape. Construction is still strong but retarding. Mining production strong and consumer spending reasonable . Job market stable.

Infrastructure spending to strengthen from Federal and State governments stimulus.

Economic growth is predicted to be around 3.0% for year

Inflation to lift back toward high end 2-3% band . Some signs of uptrend in inflation starting to occur.

Unemployment rate steady - 5.4 - 5.5%.

Australian dollar is volatile and responding to many influences. The recent strength is due to high commodity prices. In our view, due to the inevitability of an increased $US as a result of rising interest rates, there will be a steady deterioration of the $A over the next 18 months.

Interest Rates

Interest rates - Predominantly based on Westpac forecast

                                                                  Predictions

                                  Latest   March.17   June.17   Dec.17   Mar.18

Cash Rates                   1.5          1.5              1.5        1.5           1.5 

3 Year Swap                   2.24        2.1             2.2      2.36         2.55

Relatively stable rates but rise in $US interest rates will force increase due to increased costs of borrowings.

US$ 10 year                    2.55      2.55            2.65      2.85        3.0

Australian Economic Growth Forecasts

Calendar                 2017                   2018

Westpac                     3.0%                     2.6%

CBA                             2.75-3.25%           N/A

Stock Forecasts

A risk in global interest yields may see a recycling out of Australian carry trade in shares. We see a market trading range between ASX 5,500-6,000 levels with demand from Chinese stimulus and rising Australian company profits possibly allowing the bump up in trading ranges. Watch resistance at the 5,500 level downward.

US$/AUS$ Currency Prediction

Westpac -

Current       March.17    June.17    Sept.17    Dec.17    June.18    Sept. 18    

     .75                .74              .74 .          73             .72             .70           .68

General strength of US$ as interest rates increase and economy improves.

Real Estate

Residential Forecast Concensus

Predicted Rate of Growth

Sydney       2017

SQM Research          BIS Shrapnel              Core Logic    

      11%                             2.4%                            10.0%

Consensus still bullish on housing. However be careful on apartments. Watch apartments in Melbourne, Brisbane and segments of Sydney apartment markets as these will come under price and rental pressure with significant over supply. Our prediction, watch Sydney for the emergence of the 'town house' especially in areas close to the city and inner west due to downsizing and unaffordability - the 'town house' will become new housing reality and in our view the potential sector to have the greatest rate of growth.

Retail and Commercial - Sydney

Slight increase in rental supply and yield compression, has to lead to a solid year of returns this year, this year will be challenged if interest rates increase over the next 18 months.

Office - Sydney

Most Sydney metro markets performing well. Falls in vacancy and rental growth combined with residential conversion and dropping incentives. Good outlook in short to medium term.

 Summary

A relatively stable outlook for the year in most classes of investment with commodity exports and infrastructure spend saving the day for the economy and markets in general.


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I would like to say that Loewy Consulting Partners provide prompt and helpful advice in processing my income tax and in dealing with the Australian taxation office and highly recommend their services to my colleagues. The staff are friendly and always available to assist with knowledgeable advice.

Dr Robert Mansberg
MB BS FRACP, Consultant Physician in Nuclear Medicine, Concord and Nepean Hospitals, Clinical Lecturer, Discipline of Imaging, University of Sydney