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Tom Scollon
Chief Editor Whilst the internal drivers for the local economy are still very sound, the global economic picture is not a universally robust one. We will look at likely growth rates for the key economic blocs and attempt an overall assessment of our economy and in turn our equities market.
One economy that will be a major disappointment for Australia in 2005 will be Japan. Not only, because it is by a long shot the second biggest world economy after the USA, but more especially because Japan still has the biggest upside or downside for our miners. Our miners have seen very little profit flow through to the bottom line from the increase in prices for our resources, because of the rising dollar. With new mining capacity coming on stream in 2005, a boost in demand from Japan would be ideal. But unfortunately there are some signs that Japan could slip back into recession in the first half of 2005. At best Japanese GDP growth rate is likely to be less than 1%.
Contrast that with GPD growth in China of a still solid 8% (down from 9.5% in 2004), India 7% and the rest of Asia about 4%, it demonstrates starkly the parlous state of our biggest trading partner.
GDP in many other parts of the world – Eastern Europe, Russia and many parts of Africa, Middle East and South America should remain firm in this coming year.
The other country that is a key driver of local growth is the USA. We cannot get away from Uncle Sam’s influence on our markets. USA GDP is expected to be in the order of 3% (there are as many views around this figure as there are experts), which is down from the strong 4% rate in 2004. That fall may seem small to some of you but for the largest world economy – US $trillion in 2004 – that is a huge fall. Not overly alarming, as that rate is still positive but it is the other baggage that it brings. And in particular the mounting deficit and the fall into oblivion of the US dollar. This plays havoc with other nation’s economies and currencies, not to speak of the price of gold and oil as we are currently witnessing.
In the USA there are pessimists and optimists about the USA economy for 2005. If it behaves well then we could have another comfy year …… but if it misbehaves well it could even be horrid. Let’s hope for the first.
Enjoy the ride.
Tom Scollon
Editor
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