December Market Update 2017
- The global economy continues to generate synchronised growth and markets are expecting these conditions to continue into 2018.
- In the US, both houses of Congress have approved bills to reform and lower corporate and personal taxes paving the way for new tax laws in coming months.
- In Europe, business conditions are at 16-year highs suggesting that the Eurozone can continue to generate above-average economic growth.
- In China, regulators continue to try to reign in credit growth and curb speculative investment.
- The Australian economy is being impacted by weak wages growth which is leading consumers to rein in spending.
Economic news over the past month has confirmed that the major economies are continuing to enjoy relatively healthy growth in the second half of 2017 with falling unemployment and robust business and consumer sentiment surveys suggesting that current economic conditions can continue into next year.
In the United States, separate tax reform bills were passed in both the House of Representatives and Senate, paving the way for tax cuts for both companies and individuals assuming that the two bills can be reconciled. For major companies, the headline tax rate is expected to fall from 35% to 20% and, all else being equal, this should boost corporate earnings, but risks saddling the economy with higher levels of government debt if the tax cuts don’t stimulate higher economic activity.
In the Eurozone, the economy continues to perform strongly with retail sales growing 3.7% year-on-year, reflecting recent strong consumer sentiment readings. The purchasing manager surveys for the Eurozone have also continued to strengthen with the composite PMI index at a new cyclical high in November suggesting that the Eurozone economy should be growing at about a 3.5% year-on-year, higher than last quarter’s 2.5% growth rate.
Chinese activity data slowed more than expected in October and business surveys in November have also pointed to slower activity. The slowdown appears to relate to government efforts to close capacity in the metals sector to help reduce pollution.
In Japan, the preliminary estimate of quarterly real GDP growth slowed to 0.3%, marginally below expectations. This was the seventh consecutive positive quarter for growth and was enough to boost annual growth from 1.4% to 1.7%, which is above the Bank of Japan’s estimate of potential growth (of just 0.5-1.0%).
In Australia, the economy grew slightly less than expected, expanding 0.6% in the September quarter with household consumption growth particularly weak. This was likely linked with the weak wages growth which rose only 0.5% over the quarter despite the increase in the minimum wage in July. However, the economy continues to generate strong jobs growth and with business conditions at elevated levels the robust employment conditions should continue into next year.
The information contained in this Market Update is current as at 12/12/2017 and is prepared by GWM Adviser Services Limited ABN 96 002 071749 trading as ThreeSixty Research, registered office 105-153 Miller Street North Sydney NSW 2060. This company is a member of the National group of companies.
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