29 March 2020
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The next two days will reveal more about these curveballs.

Two surprising threats to the Oz economy's positive outlook

Peter Switzer
14 November 2017

By Peter Switzer

There are two surprising threats to our increasingly positive outlook for the Oz economy and it’s not that tiny, tubby guy from North Korea that President Trump has ‘not’ insulted!

(In case you missed it Donald yesterday tweeted: “Why would Kim Jong-un insult me by calling me ‘old,’ when I would NEVER call him ‘short and fat?’ Oh well, I try so hard to be his friend - and maybe someday that will happen!”)

And over the next two days we will see data that could tell us if we should be worried about these two curve balls that are being thrown at what I have argued is a pretty good economic outlook for 2018.

The first is this citizenship madness that has gripped Canberra that could even see an indigenous Australian in Jacqui Lambie have to leave the Senate if the laws of the UK tell her she is a Scot because of her dad!

Recently, one of our great Davis Cup tennis players, John Alexander, was told he was a Pom because of his dad and it’s said the Coalition will refer suspicious Labor MPs to the High Court, who could be ‘secret’ foreigners.

This could be a funny Monty Python sketch if we weren’t talking about our national government and I’m wondering when/if business will get spooked by all this turmoil and uncertainty emanating out of the nation’s Parliament?

Today we get the latest NAB business survey and the news from this respected indicator of the economy’s health has been a big reason why I’m positive about the economy in 2018.

The last reading found that the NAB business conditions index rose from 14.1 points to 14.3 points in September. The business confidence index rose from 5.4 points to 7.4 points. The rolling annual average business conditions index was at a 9-year high of 13 points. And the measure of business profitability rose from 14.8 points to a 9½-year high of 16.9 points.

This was a really good report card for the attitude of business and made me think that business investment is very likely to go higher next year, which would drive economic growth, jobs and higher wages. All this should help consumer confidence.

But if the instability in Canberra leads to concerns about a new election or Labor assuming power, given some of its more anti-business and anti-property investor policies, this could easily spook business, derail investment and create a slower growing economy in 2018.

None of this scenario looks great for stocks either, so that adds another worry that could come out of this Canberra citizenship crisis!

Tomorrow we get the latest Westpac reading on consumer confidence and it’s relevant to note that in October, consumers got their mojo back, with optimists outnumbering pessimists for the first time after 10 months of negativity.

So by Wednesday afternoon we should know what’s happening to both business and consumer confidence and I really hope we look past this inherited stupidity that is undermining our Government.

The second threat to our economic outlook is Donald Trump’s tax changes that could easily be delayed for a year. To be precise, the Senate Republicans are talking about a delay on introducing the company tax cut and this is already hurting confidence on Wall Street.

If the Senate has its way over the President and the House, Wall Street could sell off and our market would play follow the leader but, worse still, the US dollar would fall and our dollar could rise and this too could slow down economic growth for us next year.

The dollar falling has always been a good reason for me being positive about the economy in 2018.

For economies and stock markets confidence is everything and at the moment Canberra’s foreigner ‘f-up’ and Donald’s tax trap created by the Senate, could be the curve balls from left field that I never contemplated.

By the way, I don't see either of these issues creating a big stock market drama but they could create reasons for a solid sell off.

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