By Frank Newman on 17th December 2016
2016 has been a year of significant change, on many fronts.
It’s been a stellar year for property investors: Huge increases in property values and low interest rates. I do not expect that to be repeated in 2017. Interest rates are on the rise, residential bank lending has dropped markedly, and property prices are levelling off. 2017 will probably be a year when most investors sit back and take a breath. Those who have taken on too much debt should focus on debt repayment. Immigration will remain a key factor looking ahead, and it will be closely monitored by market watchers. Auckland is at the greatest risk – which is to be expected because it has had the greatest gains. The provincial property markets are much less vulnerable as most have merely just caught up to 2008 prices.
We have new prime minister. Who would have picked that a year ago? 2017 is an election year. My guess is that this time next year Bill English will still be prime minister, but Winston Peters will be his deputy.
The New Zealand economy is in good shape. Treasury’s Half Year Economic and Fiscal Update forecasts rising wages, lower unemployment, strong growth (3.6% next year), and growing surpluses. While the Kaikoura earthquake will impact on the current year’s budget surplus, by 2019 the surplus is expected to be $5.4 billion and $8.5 billion by 2021. That’s significant.
The economy will be boosted by recovering dairy prices. The global dairy price index was up 50% in the 2016 year and next seasons forecast payout is above the breakeven level for most dairy farmers. The outlook is positive for 2017.
The construction sector is also strong, as is tourism which is benefiting from cheap air travel and lower fuel prices. This time last year I wrote, “The OPEC cartel…has been broken by the free market…consumers are benefiting instead of the blackmailers. The lower oil price is also resulting in lower travel costs, which is great news for our domestic and international tourist operators.”
Last week OPEC, and a number of other producers, agreed to cut production to clear a global glut that has depressed prices. How successful this will be in the face of increased production from other independent countries remains to be seen, especially given president-elect Trump has promised to increase US oil production.
The election of Donald Trump as US President is nothing short of remarkable. The anti-establishment movement has been gaining momentum for a number of years, but in 2016 it broke through the barricades. The Brit’s are leading the charge.
The UK’s withdrawal from the European Union (EU), Brexit, is the story of many otherwise silent individuals standing up against a self-serving bureaucracy. The year ahead will be even more challenging for the EU with general elections in the Netherlands, Italy, France and Germany. Anti EU parties are on the rise and may well seize control. The EU has been adamant that a condition of free trade is the free movement of people, which they say means residency (not merely work permits). Either the EU will need to soften its position on this issue or it will implode. Which of the two options eventuates will become clear in 2017.
Rejecting the establishment is also the back story to the astounding rise of Donald Trump. It is evident from the selection of his cabinet that Trump intends to carry out his pre-election promises (tweets!). The Clinton vs. Trump election was largely one of change vs. risk. The desire for change was so great that voters went for the high-risk Trump rather than the establishment Clinton.
Trump will have a very significant impact on world events and world markets. He is a risk taker and a deal-maker and those traits are likely to be the hallmarks of his presidency. The TPP trade deal is dead even before Trump assumes the presidency, because he says it’s a bad deal for America.
Trump will have such a big influence in 2017, that even we at the other end of middle earth will feel it!