Provision Newsletter

If you look at the statistics, it takes the majority of Australians a little over three and a half years on average to save for a deposit on a first home¹

If you’re thinking about, or aren’t far away from, putting some money down on that place of your dreams, we look at some of the financial and non-financial considerations you’ll want to be across.

1. Figure out how much money you have to play with

The most common loan terms in Australia are generally 25 and 30 years², and as a mortgage is likely to be the biggest debt you’ll ever take on, it’s important to prioritise any other financial goals you may have and figure out where a home purchase ranks on that list.

The price of the property you’re looking to buy will also play a big part as it will often determine the deposit you need, so it’s worth figuring out how much you can realistically afford early on.

If your family is willing to help, it’s a good idea to discuss how they plan to do this. And, keep in mind there could be risks, benefits and tax implications if financial help is given.

Meanwhile, if you’re buying property with a partner, it’s important to be upfront about your financial past and plans, and whether you’ll put something in writing should the unexpected happen.

Check out AMP’s cost of home loan calculator if you’d like help crunching the numbers, or alternatively speak to a bank or mortgage broker.

2. Find out if there are black marks on your credit report

A credit report, which details your repayment history, could affect your ability to get approval on a loan if it doesn’t read well.

As each lender will assess your credit file against their own policies, there may be instances where some approve your application, while others reject it or delay the process.

The main credit reporting agencies in Australia are Veda, Dun & Bradstreet, Experian and the Tasmanian Collection Service, and you can request a copy if you’d like to see what yours says.

3. Know what you’re going to fork out

Here’s a snapshot of some of the costs you’re likely to come across early on and on an ongoing basis.

The upfront costs

• Purchase price – This is the actual cost of the property. And, unless you’re able to pay for it outright, you’ll generally need to take out a loan, noting that lenders will generally ask for a minimum deposit of 10% to 20%.

• Loan application fee – This is a one-off payment to your lender when your loan commences. Fees may vary depending on your provider and will cover things such as credit checks, property appraisals and basic admin.

• Lender’s mortgage insurance – If you have a deposit that’s less than 20%, you may be required to pay lender’s mortgage insurance which is there to protect your lender in the instance you’re unable to repay your loan.

• Government fees – Stamp duty is a land/property transfer tax applied by all Australian state and territory governments, which can vary greatly depending on where your dream home is located. Mortgage registration and transfer fees also apply and differ from state to state.

• Legal and conveyancing fees – These cover the services of a real estate conveyancer or solicitor, who’ll prepare the necessary documentation and conduct the settlement process.

• Building, pest and strata inspections – Payment for these services or reports will identify structural concerns, as well as maintenance and financial issues (if you’re in a body corporate).

• Moving costs – This will come down to how much you do yourself, whether you rent a truck, or hire professionals to move your stuff for you.

The ongoing costs

• Loan repayments – What you pay back and how often you make repayments will generally have a big impact on the length of time it takes you to pay off your home loan.

• Interest charges – You can generally choose a fixed or variable rate, or a combination of the two, which is worth some research, particularly as interest rates can go up and down.

• Other ongoing expenses – This might include strata fees for communal properties, council rates, utility costs, building and contents insurance, and things like home improvements.

4. Ensure the locations you’re looking at stack up

To ensure you buy something you love and for the right price, consider:

• How much properties are going for in the suburbs you’re interested in

• How far you’re willing to live from family, friends and work

• Whether there’s off-street parking and local amenities, such as schools, shops and transport

• Whether you’ll need to renovate and if you have the extra funds available to do so

• If there is price growth potential in the suburbs you’ve shortlisted

• If there are proposed developments in the area that may impact the value of your home

• What the crime rate is like in the areas you’re keen on

• If you’re moving far away, how the local job market fares and what the weather is like.

If you need help gathering some of this information, speak to real estate agents who work in the area, or look at real estate companies online.

Meanwhile, different features will appeal to different people when looking for a home to live in, so consider what works for you.

5. Research whether you’re eligible for assistance

The First Home Owner Grant

The First Home Owner Grant is a national scheme. If you’re unsure about eligibility, contact your state revenue office and be sure you apply with enough time.

Stamp duty concessions

Certain state and territory governments offer additional incentives to first home buyers, some which involve stamp duty concessions, so research what’s on offer in the area where you’re buying.

The First Home Super Saver Scheme

Eligible first home buyers can withdraw voluntary super contributions (which they’ve made since 1 July 2017), to put toward a home deposit.

Under the First Home Super Saver Scheme (FHSSS), first home buyers who make voluntary contributions into their super can withdraw these amounts, up to certain limits, in addition to associated earnings, from their super fund to help with a deposit on their first home.

If eligible, the maximum amount of contributions that can be withdrawn under the scheme is $30,000 for individuals or $60,000 for couples.

6. Familiarise yourself with different types of loans

Depending on whether you’re after a basic package or one with added features, home loans can vary a lot when it comes to interest rates and fees.

To get a better idea of costs, when you see a home loan advertised, you’ll notice two rates displayed—the interest rate and the comparison rate.

The comparison rate will incorporate the annual interest rate as well as most upfront and ongoing fees. Some home loans, with lower interest rates, are laden with fees, so while they appear cheap, they aren’t. The comparison rate can help you identify this and compare loans more accurately.

Some other things worth exploring when you’re looking at different loans is the potential advantages and disadvantages of various features, which may allow you to make extra repayments, redraw funds, or use an offset account which could reduce the interest you pay.

If you’re looking for the best deal, remember to shop around and don’t be afraid to ask your lender if they can do better than the rate that they’re currently advertising.

7. Get your finances in order so you’re ready to go

It’s a good idea to have your loan pre-approved so you know exactly what you can borrow. You’ll also need formal approval closer to purchasing and to have your deposit ready, or you may miss out.

This may mean having your cheque book or a bank cheque ready to go if you’re buying your first home at auction.

As part of the process your lender will also advise if lender’s mortgage insurance is required.

8. Don’t forgot your last chance for an inspection

Inspections will alert you to serious issues that may not be visible to the eye—asbestos, termites, electrical, ventilation and serious plumbing faults, which could in the long run cost you a whole lot more than the building inspection itself.

Meanwhile, strata reports, if you’re buying a townhouse or apartment, can tell you whether the property is well run, well maintained and adequately financed.

Please contact us on |PHONE| if you seek further discussion.

¹ Finder – 1 in 3 first home buyers stuck saving for a deposit for over 5 years press release
² Finder – How long should my home loan be? paragraph 12

Source: www.amp.com.au

All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.

We’ve all had the feeling. You step off the plane from Bangkok still buzzing, images from your holiday flitting through your mind—the Parthenon, Big Ben, the Eiffel Tower.

What a trip…you’re not going to kiss the tarmac or anything but it’s good to be home! You post the final selfie to Instagram on your mobile but as you flick back to the home screen you notice your banking app. A nagging thought disturbs your post-holiday reverie.

You haven’t logged on since you left Australia. But it was all so slick. The days of sowing travellers’ cheques into your pants and wiring FedEx cheques around the world are long gone.

Even the little Thai fishing village had a workable ATM that pumped out baht. And pretty much everywhere accepted your credit card. Luckily you extended the limit before you left, all it took was a few clicks. You also vaguely remember setting a daily budget…that didn’t last long. But hey, you’re not in Rome every day of the year.

Hang on though…you did hit it pretty hard in London’s West End. And then there were the five days at the Airbnb near Lake Como. After all, if it’s good enough for George and Amal, it’s good enough for you. Come to think of it, the previous week scooting up and down the French Riviera wasn’t cheap. And way back at the start of the trip those Sangrias in Barcelona kept on coming…

Slowly your heart sinks and you close the screen down, hastily shoving the phone back in your pocket. It can wait another hour at least, at least until you’ve got home and brewed a strong cup of coffee.

You’ve heard of jetlag, now brace yourself for debt-lag

We know how to avoid jetlag. Stay hydrated, get as much sleep as possible and go easy on the complimentary inflight beverages.

But what about debt-lag? You don’t want to arrive back home with a spring in your step but a hole in your wallet.

And it doesn’t have to be the trip of a lifetime. Even if it’s just the annual family holiday down the coast, it’s all too easy to let your spending get out of control.

Here are a few tips you might want to consider that could help you avoid a travel debt hangover.

Budgeting tips before you go…

• Pre-pay the big-ticket items. Look for good deals and pay in advance for flights, accommodation and tours. The more you can pay for before you go, the less you’ll have to pay for at short notice with a potentially hefty local mark-up.

• Do your homework on fees and charges. You may want to give yourself a choice of how to pay—a debit card with lower fees, a pre-paid travel card so there are no surprises and a credit card for emergencies.

• Work out your holiday budget. Think about how much you’re willing to spend—it could help to set a daily limit and an overall limit (and stick to it!). Sometimes your choices about where to travel and where to stay can have a knock-on effect. If you’re based on a resort island or in a small hotel room with no kitchen facilities it could be difficult to source reasonably priced groceries and save money on food.

…budgeting tips while you’re travelling…

• Keep track of how much you’re spending. If you’re good at budgeting, there’s no reason to let things slide just because you’re on holiday. And if you’re not so good at budgeting, a holiday could be the ideal time to start getting into the right habits.

• Use the right card. Pre-loaded travel cards are getting more popular and mean you don’t have to stress about the exchange rate. Credit cards are convenient but represent temptation. If you’re going to use credit, make sure your card is appropriate for travelling. Some cards charge an international transaction fee as well as not giving you any control over your exchange rate.

• Make smart choices. Sometimes local merchants will give you the choice of paying in the local currency or Australian dollars. Converting to Aussie dollars could cost you more as you may not get a favourable exchange rate.

…and budgeting tips when you get back

• Pay off your credit card as soon as you can. Be wary of minimum repayments—this only drags out the debt for longer and increases the overall interest charges. If you can cut back in other areas you could potentially pay off your credit card debt earlier and avoid paying interest.

Tools to help you manage your money

If you’re looking at budgeting, AMP has some useful tools that could help you manage your money more effectively.

• Pay your bills, save for something special and spend safely on the things you want with an AMP Bett3r Bank Account.

• Get a bird’s eye view of your finances with My Money Manager.

Please contact us on |PHONE| if you seek further discussion.

Source: www.amp.com.au 4 December 2018

Important information: Use of the AMP Money Manager is subject to Terms of Access available on My AMP.

This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

AMP Bett3r Account is issued by AMP Bank Limited ABN 15 081 596 009, AFSL 234517. Consider the terms and conditions available on request by calling 13 30 30 or at amp.com.au/bett3r and whether this product is appropriate for you. Fees and charges apply.

Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

There may be ways you could adjust your budget to help pay the bills

As living costs continue to rise, many Australians are finding it tough to make ends meet. Here are five red flags that mean you may need to review your personal finances.

1. You find it hard to pay for emergencies

The car breaks down. The hot water system starts leaking. A few roof tiles come down in a storm. Without an emergency fund you could find yourself high and dry if an unexpected problem arises.

If you have any slack in your home loan you could redraw to pay for emergency repairs. But then you’d be using borrowed money, not to mention putting yourself behind on your repayments.

Ideally, as a rough rule of thumb the minimum emergency fund should be around three months of your salary. Don’t forget, if you need to draw on your emergency fund, you’ll need to top it back up again. It’s even easier if you’ve already set up automatic payments. And if you set up your emergency fund in an offset bank account, it will help to reduce the interest you pay on your home loan.

2. You pay interest on an unpaid credit card bill every month

If you can pay off your credit card bill in time, fine. But credit card limits represent temptation that can be hard to resist. One option is simply to get rid of your credit cards and use a debit card instead. But if that’s too extreme, set yourself strict spending limits and make sure you pay off the card before interest starts to accrue.

3. You spend a high proportion of your income on paying your rent or servicing your home loan

If this sounds like you, you’re not alone. An estimated one in five Australians are experiencing mortgage stress¹. If you have a home loan, it might be worth talking to your provider about whether you can refinance. And if you’re paying rent, it might be worth looking at solutions like renegotiating your terms or looking at moving to a more affordable area. Either way, professional financial advice can help you look at ways to juggle the family finances.

4. You run out of money before your next pay cheque

It may sound obvious, but the rising cost of living means many Australians are finding it difficult to make their money last the month. If you’re finding yourself in this position, see if there are any savings you can make. If possible, try setting a strict budget and stick to it—taking it one day at a time. 

5. You find it difficult to meet everyday expenses

Putting food on the table. Getting to and from work. Heating and cooling your home. If you’re finding it hard to meet the basic necessities of life it can be easy to feel overwhelmed.

Take a deep breath and start by asking yourself a few questions.

• Could you save money by shopping around for a better deal from utility and other service providers?

• Are there any savings you can make elsewhere in your family budget?

• Are you taking full advantage of any government or employer benefits you’re entitled to?

• Can you divide your expenditure into essentials and discretionary and set strict limits to help you get back on your feet?

Getting your spending under control…

Unfortunately, illness, redundancy and bereavement can happen at any time, leaving you in financial hardship through no fault of your own.

If you’re an AMP customer we offer support through periods of financial difficulty.

But if you recognise that excessive spending is putting you in a tricky position despite a regular income, there are ways to get your expenditure under control.

• Instead of continuing with your normal routine, why not try a no-spend challenge — you might be surprised to discover what you learn about how to save money.

• Instead of going out to the cinema or the new restaurant down the road, why not have a movie night in and invite friends and family?

• Instead of buying a daily takeaway coffee, why not take a plunger to work and make your own?

• Instead of using credit, why not think about using a debit card so you’re not spending money you don’t have?

• Instead of driving to work or taking the train, why not consider cycling or walking part of the way to save money and get fit?

• Instead of giving in to impulse buys, why not divide your expenses into essential and discretionary—you might be surprised at how much you can save by setting a strict limit on non-essentials.

…and getting the most out of your income

Once you’ve got your spending more under control, you might want to consider looking at ways to maximise your income, such as:

• claiming all the government benefits you’re entitled to

• including all your work expenses in your tax return

• making money on the side of your usual job.

There’s no time like the present to start getting your finances in order and turning those red flags green.

Please contact us on |PHONE| if you seek further discussion.

1 Roy Morgan Single Source (Australia)

Source: www.amp.com.au 27 November 2018

Important information: This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

AMP Bett3r Account is issued by AMP Bank Limited ABN 15 081 596 009, AFSL 234517. Consider the terms and conditions available on request by calling 13 30 30 or at amp.com.au/bett3r and whether this product is appropriate for you. Fees and charges apply.

Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

From Port Stephens to Port Hedland, Australia teems with beautiful golf courses. Better still, most are easily accessible to the general public.

For some travellers, golf clubs are the first item to be packed when taking a break. The accessibility and wide variety of Australian courses ensures that playing golf when on holidays is a popular pastime.

Rather than compile yet another list of Australia’s best golf courses, we wanted to highlight for you those layouts that provide the average player with an interesting yarn that can be shared when returning to their BIG4 accommodation.

Whether unique, quirky, novel, or ancient, we introduce you to eight Australian golf courses that you must play.

1. Coober Pedy Opal Fields Golf Club, SA

This is one of the best golf courses to play when on holidays in Australia owing to a couple of quirks that make for great conversation. Firstly, the course is completely grassless, which makes you think you’re playing on another planet. To hit the ball, you simply carry with you a piece of artificial turf to place on the ground. The course’s second quirk is that it claims to be the only golf club in the world with reciprocal playing rights with the famous St Andrews Links in Scotland.

More information can be found on the BIG4 Stuart Range Outback Resort website.

You’ll never look at the humble banana the same way again after discovering the many health benefits and reasons to add them to your diet.

They can help to combat depression, make you smarter, cure hangovers, relieve morning sickness, protect against kidney cancer, diabetes, osteoporosis, and blindness. Plus they can even cure the itch of a mosquito bite and put a great shine on your shoes.

Here are 25 reasons to eat bananas you might have never considered before.

If You Think Bananas Are Just For Monkeys, Think Again

These 25 ways to use and eat bananas will blow your mind!

1. Bananas help overcome depression due to high levels of tryptophan, which is converted into serotonin — the happy-mood brain neurotransmitter.

2. Eat two bananas before a strenuous workout to pack an energy punch and sustain your blood sugar.

3. Protect against muscle cramps during workouts and night time leg cramps by eating a banana.

4. Counteract calcium loss during urination and build strong bones by supplementing with a banana.

5. Improve your mood and reduce PMS symptoms by eating a banana, which regulates blood sugar and produces stress-relieving relaxation.

6. Bananas reduce swelling, protect against type II diabetes, aid weight loss, strengthen the nervous system, and help with the production of white blood cells, all due to high levels of vitamin B-6.

7. Strengthen your blood and relieve anemia with the added iron from bananas.

8. High in potassium and low in salt, bananas are officially recognized by the FDA as being able to lower blood pressure and protect against heart attack and stroke.

   Eating Bananas For Digestion

9. Rich in pectin, bananas aid digestion and gently chelate toxins and heavy metals from the body.

10. Bananas act as a prebiotic, stimulating the growth of friendly bacteria in the bowel. They also produce digestive enzymes to assist in absorbing nutrients.

11. Constipated? High fiber in bananas can help normalize bowel motility.

12. Got the runs? Bananas are soothing to the digestive tract and help restore lost electrolytes after diarrhea.

13. Bananas are a natural antacid, providing relief from acid reflux, heartburn, and GERD.

14. Bananas are the only raw fruit that can be consumed without distress to relieve stomach ulcers by coating the lining of the stomach against corrosive acids.

    For Natural Healing From A Simple Banana

15. Eating bananas will help prevent kidney cancer, protects the eyes against macular degeneration and builds strong bones by increasing calcium absorption.

16. Bananas make you smarter and help with learning by making you more alert. Eat a banana before an exam to benefit from the high levels of potassium.

17. Bananas are high in antioxidants, providing protection from free radicals and chronic disease.

18. Eating a banana between meals helps stabilize blood sugar and reduce nausea from morning sickness.

19. Rub a bug bite or hives with the inside of the banana peel to relieve itching and irritation.

20. Control blood sugar and avoid binging between meals by eating a banana.

21. Eating a banana can lower the body temperature and cool you during a fever or on a hot day.

22. The natural mood-enhancer tryptophan helps to relieve Seasonal Affective Disorder (SAD).

23. Quitting smoking? Bananas contain high levels of B-vitamins as well as potassium and magnesium to speed recovery from the effects of withdrawal.

24. Remove a wart by placing the inside of a piece of banana peel against the wart and taping it in place.

25. Rub the inside of a banana peel on your leather shoes or handbag and polish with a dry cloth for a quick shine.

Oh, and remember — bananas make great snacks and delicious smoothies.

Delicious Creamy Banana & Avocado Smoothie Recipe!

Serves 2 

Ingredients

(use organic ingredients where possible)

• 2 bananas (fresh or frozen)

• 1/2 avocado, stone and skin removed

• 1 1/2 cups almond milk (or any other milk)

• 1/2 – 1 tsp ground cinnamon

• 1/2 tsp vanilla paste

• 1 tbsp raw honey

• 1 tbsp chia seeds

• 1 tbsp bee pollen

• 1 tbsp peanut butter (optional)

• 1 tbsp of Superfood Protein (optional)

• Handful of ice

Method

Place all ingredients in a blender. Blend on high speed for half a minute until you reach a smooth consistency. Enjoy! 

Now You Know Why Monkeys Are So Happy. Eat A Banana!

Source : Foodmatters

Reproduced with the permission of the Food Matters team. This article by  JAMES COLQUHOUN  was originally published at www.foodmatters.com

Important:
This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

2019 is likely to be an interesting year for the Australian economy. Some of the big drags of recent years are receding but housing is turning down, uncertainty is high around the global outlook and it’s an election year, which will add to uncertainty. This note looks at the main issues around the housing downturn and what it means for the economy and investors.

Australian growth has slowed again

September quarter GDP growth was just 0.3% quarter on quarter or 2.8% year on year and was well below expectations. 

Source: ABS, AMP Capital

It was concerning for two reasons. Firstly, it suggests that the pickup in growth seen in the first half of the year was an aberration. And secondly it highlighted that the fears around consumer spending as housing slows may be starting to be realised as consumer spending was the big downside surprise.

Housing downturn…

For years we have felt that the combination of surging household debt and surging house prices was Australia’s Achilles heel in that it posed the greatest domestic threat to Australian growth should it all unravel. But we also felt that in the absence of a trigger it was hard to see it causing a major problem. However, over the last year a combination of factors have come together to turn the housing cycle down and create a perfect storm for house prices in Sydney and Melbourne.

These include: poor affordability; tight credit conditions; a surge in the supply of units; a collapse in foreign demand; borrowers switching from interest only to principle and interest loans; fears by investors now that changes to negative gearing and capital gains tax if there is a change of government (assuming Labor can get it through the Senate) will reduce future demand for their property investment; all of this is seeing the positive feedback loop of recent years (of rising prices > rising demand > rising prices etc) give way to a negative feedback loop (of falling prices > falling demand > falling prices etc). This could all be made worse if immigration levels are cut sharply.

Auction clearance rates have fallen to record lows (in terms of my records!) – which for Sydney and Melbourne are consistent with further price falls running around 8-10% pa – and housing credit continues to slow.

Source: Domain; AMP Capital

House prices in Sydney and Melbourne will likely have a top to bottom fall of around 20% (10% in 2019) and national average prices will likely have a top to bottom fall of around 10%.

…leading to a drag on growth

While not on the scale of the property crashes seen during the Global Financial Crisis (GFC) in the US and parts of Europe, the Australian property downturn will have a significant negative economic impact. The main impacts are expected to be:

• a direct detraction from growth as the housing construction cycle turns down. This is likely to amount to around 0.4 percentage points per annum (which was what it added on average during the construction boom).

Source: ABS, AMP Capital

• reduced demand for household equipment retail sales as dwelling completions top out and decline.

• a negative wealth effect on consumer spending of around 1% pa. Rising housing wealth helped drive decent growth in consumer spending in NSW and Victoria as households reduced the amount they saved as their housing wealth rose. This is now likely to go in reverse detracting around 0.6 percentage points from GDP growth.

• there could also be a feedback loop into further bank credit tightening if non-performing loans and defaults rise.

Taken together these could detract 1-1.2 percentage points from growth over the next year.

No recession, but constrained growth

Clearly a deeper slump in national property prices – say a 25% top to bottom fall rather than the 10% we are expecting – would cause severe economic damage but in the absence of much higher interest rates or unemployment causing mass defaults this is unlikely. Australia hasn’t seen the sort of deterioration in lending standards seen in the US prior to the GFC that saw people with “no income, no job, no assets (NINJA’s)” get loans and where the Fed raised rates 17 times over two years! And unlike in the US, Australian mortgages are full recourse loans so there is no “jingle mail”. So, a US GFC style surge in defaults adding to downwards pressure on prices is unlikely.
Barring a deeper property slump, a recession is unlikely:

• The drag on growth from slumping mining investment (which was averaging around 1.5 percentage points per annum) is fading as mining investment is getting close to the bottom.

• Surveys point to a recovery in non-mining investment. Business investment plans for this financial year are pointing to a 4% gain and 7% for non-mining investment.

Source: ABS, AMP Capital

• Public infrastructure spending is rising and has further to go.

• Net exports are likely to continue adding to growth, although the US/China trade war is a threat here. 

• And there are even a couple of positives for consumer spending in the form of lower petrol prices (saving around $10 a week for a typical household) and likely pre-election tax cuts or handouts although these may not kick in until July 2019. Under a Labor Government this looks likely to be more skewed to low and middle income earners with high income earners facing tax hikes.

Given the cross currents, our assessment is that growth is likely to be around 2.5-3% going forward. This is not the recession some fear but it’s well down from the 3.5% pace the RBA expects.

Inflation to stay lower for longer

Growth around 2.5-3% won’t be enough to further eat into spare labour market capacity so the decline in unemployment is likely to stall (job vacancies appear to be slowing) and underemployment is likely to remain high at 8.3%. This in turn points to wages growth remaining weak. Meanwhile, it’s hard to see much uptick in other sources of inflationary pressure: competition and pressure for price discounting remains intense and commodity prices have fallen this year with the oil price falling over 30% from its recent high feeding through to lower petrol prices and the link between moves in the $A and inflation has been weak for years now. The latest Melbourne Institute Inflation Gauge points to a further fall in inflation into this quarter with its trimmed mean measure of underlying inflation up just 1.3% year on year in November.

Source: ABS, Melbourne Institute, AMP Capital

RBA to cut in 2019

Against the backdrop of falling house prices, tight credit conditions and constrained growth, which will keep wages growth weak and inflation below target for longer we see the next move by the RBA being a rate cut. However, it will take a while to change the RBA’s thinking, so we don’t see rates being cut until second half next year but won’t rule out an earlier move if things are weaker earlier than we are expecting. By end 2019 the cash rate is likely to have fallen to 1%.

Rate cuts won’t be aimed at reinflating the property market but supporting households with a mortgage to offset the negative wealth impact on spending. A 0.25% rate cut roughly saves a household with a $400,000 mortgage $1000 a year in interest costs. And banks will likely have no choice to pass the cuts on given the bad publicity not passing them on will generate.

Implications for investors

There are several implications for Australian investors.

First, bank deposits rates will remain poor.

Second, with the RBA likely to cut rates and the Fed hiking (albeit slowing) the $A is likely to fall into the high $US0.60s.

Third, Australian bonds are likely to outperform global bonds.

Finally, while Australian shares are still great for income, global shares are likely to remain outperformers for capital growth. The housing downturn will weigh on retailers, retail property, banks and building material stocks.

Source: AMP Capital 12 December 2018

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