It's easy to paint a negative outlook for 2020: Paul Clitheroe


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Can you believe it? Another year has gone by. While it was a bumpy ride in the early months, the year panned out closely to my forecasts, and those of other commentators.

The key factors were low interest rates, a growing number of jobs, stable levels of unemployment and a growing population.

Australian shares, as measured by the All Ordinaries Index, went from 5700 to around 6800 on December 31. The big east coast cities had their first decent fall in home values in a long time in 2017 and 2018.

donald trump economic outlook

With these factors in mind, one of my consistent opinions has been to buy property while the downturn lasted. But I was surprised by the price rises, in particular in Sydney and Melbourne, over the past few months.

My view had been that the falls would stop in the big east coast cities, but would stay flat for some time.

In 2020, it is hard to imagine the four factors that impact so strongly on our economy changing. Interest rates are set to stay low.

Rates at these levels are something I have only read about. Having been born in 1955, making me 64, I have never seen rates anything like this.

Sadly, I got to see the other side of rates when my mortgage hit 18.75% in early 1990.

Now, seeing some European banks paying customers to take a mortgage, really causes me to scratch my head. In Denmark and Switzerland, banks are now charging customers to deposit money with them and many expect Germany
to follow suit.

If that makes your head spin, take a look at Denmark's Jyske Bank. It is offering 10-year loans at an annual rate of minus 0.5%. Yep, on a $500,000 mortgage it pays you $2500 a year to take it.

As the bank's CEO, Anders Dam, said recently: "We thought it [negative interest rates] was a temporary thing. Personal deposits are rising by a couple of billion each quarter. These deposits yield us a big loss, so we had to act."

If this was the April edition, you could well be suspicious of an April Fool's joke, but this is not. People, in particular big investors and corporates, are paying institutions to keep their money safe.

Will that happen here? Nothing is impossible, but our Reserve Bank is encouraging federal and state governments to do more to stimulate the economy with long-term, valuable projects, such as infrastructure. This makes a lot of sense. Governments can access funding at a nearly zero rate of interest.

What a great opportunity to replace ageing infrastructure and invest in major projects that add to the productivity of our nation, not to mention jobs.

It is easy to paint a negative outlook for 2020. Geopolitical tensions are very real and no doubt all sorts of turmoil will occur.

Sharemarkets are not cheap, and some would argue overpriced. But there is a huge amount of money searching for a home, and earning a bit over 1% on a term deposit here in Australia, or a negative return in other economies, is safe, but hardly a great return.

Population growth is, barring some extreme event, locked in for Australia.

I think low interest rates are too. Employment, despite a few dire predictions, continues to grow. In fact, our economy is doing a stellar job at creating hundreds of thousands of new jobs a year.

I appreciate that few of these jobs are like "the good old days" when a youngster started with a corporation at 18 and retired at 65 - and thank heavens for that! Many of the "new" jobs being created were not heard of just a few years ago and that will continue.

So what I see is a continuation of low interest rates, growing population, strong job creation and reasonably stable unemployment. We'll get a few shocks - that will always be the case - but based on the low cost of money and growing demand by more people, it seems to me that there is no reason to be pessimistic about 2020.

I'm going to stick with my long-term, mainly growth portfolio. Then again, what else can I - or you - do? Popping the lot in a one-point-something term deposit hardly sounds like genius.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.

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