An Economic Outlook

No economist claims to being right all the time, but if you can be on the money over half of the time then you are doing remarkably well. Bearing in mind that predicting global economic movement is like predicting the weather using your intuition, here are some predictions for 2012, organised into four broad categories.

The Global Share Market

Simply put, things are looking up. This goes for both here in New Zealand, and especially in the United States. The continued financial backing of strong local companies here should see the market push through any barriers to growth, with a moderate rise of about 5% a likely figure.

The United States can expect to turn things around in quite a big way this coming financial year. After a turbulent 2011, which eventually settled about where it started, this coming year should see about a 10% growth rate in the overall market. Why? The big reason is that it’s an election year, in which the market has almost always taken an upswing. As they say, the best predictor of future behaviour is past behaviour, so watch this space for some tidy gains in the market.

Interest Rates

Interest rates in 2012 can be summed up in three words; low, low, low. Borrowers will find themselves much better off, with the Official Cash Rate set to climb no higher than about 3%. This is not such great news for anyone who has stashed away large amounts of savings, but appears to be an inevitable outcome in the current economic climate.

Inflation

On a similar note, look for inflation to ease off comfortably back into the 1-3% range set as a target for the New Zealand economy to operate in. This in turn affects interest rates, and supports a low Official Cash Rate. In a tangible sense though, the things we need will probably continue to cost more (especially food) and will only be offset by drops in the price of luxury items (such as electronic equipment).

Global Politics

With the political landscape in New Zealand recently set for another three years, look to the election coverage in the United States, and Europe’s continued economic woes to dominate the headlines.

Despite flailing approval ratings and unemployment at a high level, Obama should still have enough to hold onto his seat in the White House. This could be down to a desire not to disrupt recent improvements in the US economy, or simply because the Republican Party rarely put up their best candidates to challenge an incumbent president (making for a weaker field). The Eurozone will continue to struggle, but it is unlikely to reach the point where they will have to go their separate ways. The cost of doing so is simply too high, and even with the European economy in the shape that it is now; this would be a disproportionate reaction.

We’re all set for an interesting year, and the world will certainly be watching as the months unfold.

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