February 2014 Newsletter 

In this edition:

Welcome

Recruitment for small to medium business owners by Malcolm Waldock, Director TalentID Leaders

Investment thoughts for 2014

Division 293 Tax Notices issuing soon

Each year we are bombarded with a multitude of thoughts and ideas about the year ahead. Here are the four that appear to be the most common from all commentators.

1. Tapering in the US:
The US Federal Reserve will reduce its spending this year beginning with a $10bn change. The effect of this tapering is a hotly debated topic. Some argue that it will create significant inflationary pressure and may cause sudden spikes in the interest rates of long dated bonds, others believe it can be unwound slowly and orderly. Fortunately the orderly unwinding of the stimulus is thought to be the most likely outcome, however there is still a small probability of a disorderly unwind.

2. Europe: Will it or won't it be a growth market in 2014?
A top divergence in themes between two of the most successful international investment managers centres on this question. Platinum Asset Management is a firm believer in the growth potential of Europe, citing improved conditions in Ireland, Italy, Spain, the UK and even Greece. Magellan Asset Management is firmly in the negative, questioning the strength of European banks, the ability of the ECB to manage any more crises and the softening growth from the larger economies of Germany and France. Personally I am an optimist and would like to see the Eurozone, the single largest group of consumers in the world, back on track to push the global growth back into the 3-4% margins. 

3. China, sure its slowing but it is still growing at more than 7.5%
China is the world's 2nd largest economy and last year overtook the United States in terms of goods traded. In terms of total growth, in 2002-2003 the GDP of China was grew 12.87% or US$187,000,000,000. In 2012-13 the forecast is to have dropped to 7.6%, however this is still a growth of US$635,000,000,000, a country the size of Switzerland or more than the combined output of New Zealand, Pakistan and Ireland. This growing output is being absorbed more internally than before as the middle class of China continues to grow and they will continue to need our resources for some time yet. 

4. Australia: after the mining where to?
The output from mining in Australia is yet to peak, but the real story in terms of spending is the downturn in new projects for the sector. This means the greatest mining boom of our era has probably come to an end. What now? The aggressive rate cuts from the RBA has meant an increase in certain sectors, particularly housing, but it is the other sectors of retail, industrials and manufacturing we need to see take the lead.

This has meant a downgrading in terms of forecast growth for Australia to 2.3% for 2014, and 3% for 2015. Sectors that continue to do well include finance, residential and commercial real estate and Information Technology.

Lastly the forecast is for interest rates to remain on hold for the majority of this year and potentially move upwards in the last quarter, albeit slowly. There are of course many more themes, thoughts and influences on the local and global economy. We believe it will be a volatile year for local and world markets but one that should be generally positive.

This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.

If you have any questions about how this may impact you or your business, please contact your Goodwin Chivas & Co advisor.