The Loewy Blog Edition 16 - February 2019

THE LOEWY BLOG  EDITION 16 - FEBRUARY 2019

As the new calendar year has begun, we have reviewed a composite of commentary of prominent economic forecasters and enclose their predications for the 2019 year along with our predications.

• Global economy – The International Monetary Fund tips economic growth to be 3.5% in 2019. Advanced economy forecast growth – 2.0% - 2019 and 1.7% - 2020.

• Some green shoots of wage increases starting to occur in the Australian economy and potential for next interest rate adjustment to decrease.

• US GDP growth to slow to 2.3% in 2019 and 2% in 2020. The slow down, a side effect from China trade war, unemployment rate to continue at less than under 4%, more benign interest rate outlook than previously expected.

• From an Australian perspective uncertainties about China’s trade tension and growth, assuming trade tensions ease, China growth of 6.4%, reducing to 5.8% in 2020.

• Australian growth GDP to hit between a range of 2.6% to 2.8% (We see slow down in construction and exports, but infrastructure spend, the saviour thereon)

Interest Rates

                                                 June 2019   December 2019   June 2020

                                                              %                       %                      %

- 3yr swap                                        2.05                         2.2                  2.25

- BBSY -90 days                             2.05                         2.0                 1.95

- Cash rates –Australia                  1.5                          1.5                  1.5

- US Fed Funds rate                    2.625                      2.875               2.875

Australian Economic Growth Forecasts

                                                                                2019                           2020

                                                                                2.6%                            2.6%

Stocks                                                                  Mid 2019                 End 2019

All Ords                                                            5700 – 5800             5600 – 5700

(general decrease world stock markets – all markets to be tested as economic growth retards but slower interest rate rises may stave off large declines in world markets along with resolution of trade disputes)

US$/AU$ Currency Prediction

                                                                            June 2019              December 2019

Westpac Forecast                                                    .70                                   .69

Sydney 2019

We see continued softness in residential markets in Sydney for the 2019 year. In our view, we see potential downward trends of a further 5% fall with predictions of stability from the third quarter of 2019. Canberra and Hobart markets, only markets holding up.

Retail

Continued pressure on rentals for landlord in the wake of poor trading and Amazon/internet threat continued returns to strip shopping, a difficult sector to get capital growth and maintain income growth.

Office Market

The office market still to be strong in Sydney and Melbourne. Rental growth will outweigh some yield compression, the most positive property sector outlook for next 2-4 years.

Industrial

Strong growth in logistics and transport and online retail warehousing is driving the sector, rental growth continued to rise but threat to yields., on average, in Sydney. Sydney average price yields Prime – 5-7%, Secondary – 5.25 – 8%. Yield may slide, rental growth to increase, segment value to move sideways.

Summary

A relatively stable outlook for 2019. Growth slightly retarding. Threat to Chinese exports due to trade war and Beijing playing politics with pressure on export of services, education and goods. Although some uncertainty due to election tax policy factored in, time for conservation with investments (some increase in cash bias recommended) Watch high yield franked domestic and hybrid stocks as these could come under price pressure from Labor tax initiatives. Look at potential to reweight these investments.

Disclaimer - The material contained in this newsletter does not constitute advice. LCP is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation