The end of financial year wrap: experts tip strong year ahead

The last financial year surprised many with strong economic results. 

Despite concern around the Australian economy’s dependence on the mining industry, shares, bonds and property have all done well over the last 12 months.   Interest rates remain at record lows and the economy continues to grow. 

As businesses are now planning for the new financial year, SmartCompany takes a look back on the highs and lows of the past year and asks experts what to expect for the year ahead.

Sharemarket

Chief economist for the NAB, Alan Oster, told SmartCompany he expects the sharemarket to continue to perform well after finishing the year up about 12%.

“Basically the economy behaved as expected, maybe a touch stronger,” he says.

“It’s all about export versus domestic demand, which is still quite weak.”

He is tipping another “moderate” 10% increase in the sharemarket for the year ahead. 

Consumer confidence

Consumer confidence took a hit after the budget in May but Warren Hogan, chief economist at ANZ, says it is “slowly coming back in recent weeks”.

“The overall economy has been pretty good given the challenges we face and a lot of uncertainty still hanging around after the financial crisis,” he says.

Looking to the next financial year, Hogan says there is still “a lot of uncertainty” about how much traction the non-mining recovery will get in Australia.

“We are still watching that closely, all the signs are that it should happen. If we get a broader lift in non-mining business investment and the job creation associated with that it could be a very strong year for Australia.”

Property

Australia’s strong economy has received a big boost from new home building, according to Harley Dale, chief economist of the Housing Industry Association.

“We saw a recovery in new residential construction over the course of the year and that generated demand in parts of the retail manufacturing and supply distribution sectors that you wouldn’t have seen in the economy without that new home building recovery,” he says.

But Dale warns new home building can’t on its own successfully transition the Australian economy away from mining related investment towards more domestic-focused activity.

“The year ahead is another strong one for new home building, we appear to be on track to build the second highest number of new homes on record and hopefully maintain historically high levels of new residential construction in 2015 as well,” Dale says.    

Interest rates

The Reserve Bank of Australia has held firm on interest rates this year and experts predict this approach will continue over the next 12 months.

“We believe interest rates will remain on hold until the middle of 2015 with a slight chance of a further interest rate reduction this core cycle,” Dale says.

Similarly, Hogan says “interest rates are unlikely to do anything”.

“The consensus is for a modest increase next year, but I wouldn’t be surprised if we see interest rates in the same place,” he says.

Dollar

The fate of the Aussie dollar is “one of the uncertainties” hanging over Australia’s economy for the next financial year, according to Hogan.  

“At the moment it is a little bit high compared to the underlying fundamentals,” he says.

Hogan says he would like to see the Aussie dollar come down over the next six to 12 months to the mid 80c mark, which would help the economy.

“One of the risk factors for the year ahead is that the dollar will go up because the rest of the world is in such poor shape that capital finds its way to Australia and pushes the dollar up,”

However, Oster predicts currency will only drift down to “90c maybe a bit below”.