The shape of 2016

Here is this month’s regular Q&A column contributed by Greg McKenna, the Markets & Economics Correspondent for Business Insider Australia.  


2015was a volatile year.

Australia had a change of prime minister, and treasurer. The Australian dollar crashed below 70 cents, the stock market disappointed everyone and was down more than 7%  in December 2015. Iron ore, crude oil, copper and other commodities crashed dragging our terms of trade lower with them. And the global economy, and global trade slowed to the extent that economic output globally was the weakest since 2009.

Yet all through this the Australian economy continued to muddle through. Recent Q3 national accounts growth showed the economy printed a relatively healthy 2.5% growth rate in the year to the end of September. Add in the fact that employment remains strong and the nation has a solid base for 2016.

But what might the year ahead look like? Taking into account that Peter Drucker once said “trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window,” I’m going to have a stab anyway.

So here are 5 themes we’ll be talking about this year:

1. How low can commodity prices go? – after years of relentless selling 2016 could be time for a turn around.

2. How high will US interest rates go? The Fed will be challenged by lowflation but they will increase rate 4 times in 2016. That’s a risk for stocks in Australia and globally. Will the ASX200 have another down year?

3. Will the RBA raise rates? No time soon but if employment remains strong and commodities bottom the 2% is too low.

4. When will Sydney house prices stop falling?

The bubble has burst, clearance rates are falling and property prices are likely to drift lower as investors sit on the sidelines. But prices shouldn’t fall to far, more like 2003-2010.

5. Where will the Australian dollar head? It looks like another volatile year for the Aussie. A 65-77 cent range seems fair, or maybe 67-78.

And a Bonus theme

6. When is the election and will it be fought on the GST and an overhaul of the Federal government’s finances? Markets are much easier to guess at than this one.

Tying it all together: It is a great time to be an Australian. Not just because the prime minister says so but because the economic dynamism that propelled the economy toward its 25th year without a recession continues. Risks are ever present, but the economic transition is real and gaining traction.

Greg McKenna is an economist, trader and adviser. He runs his own consultancy and writes for Business Insider Australia. You can find him on Twitter @gregorymckenna or at

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