Looking ahead at the year to come | The Sauce | Bringing you the ...

By Martin Conboy

As we know, economic strategists often make wildly inaccurate forecasts. At the beginning of 2011 for example, the sages were predicting that the Australian stock market would break through the 5000 barrier. In reality, it was closer to 4000 at the end of the year, falling 15% instead of rising as predicted.

This year 2013 the pundits are predicting the market to more or less stay level. However as I write the market has already broken through the 5000-point barrier. This breakthrough is an important psychological barrier as it relates directly to the missing ingredient in our economy and that is confidence.

Adding weight to this is a measure of consumer confidence, by the Melbourne Institute and Westpac Bank, that surged to its highest in 26 months in February as consumers become more optimistic about the economy and their own finances, suggesting past interest rates cuts might finally be lifting spirits.

The Reserve Bank of Australia lowered interest rates four times in 2012. The official cash rate is now at 3%, which is as low as rates fell to during the global financial crisis. Most economists are predicting that the RBA will cut further, although given the news above it would seem to suggest that rates might stabilize.

Westpac chief economist Bill Evans said a rally on local share markets and better current economic news from overseas may have helped boost consumer sentiment.

??Sentiment may have been buoyed by a strong start to the year for financial markets,?? he said. ??News from offshore has also been broadly supportive. The report is welcome news with the solid gain in confidence the most promising sign yet that lower interest rates are starting to generate more positive traction with consumers.?

The other issue that we have to deal with this year is a federal election, I?m not sure why but businesses seem to become very shy about making business investment decisions in an election year, I can only suppose it relates to what people perceive will happen to the economy after one side or the other gets into power. The election will be fought on a number of issues and as the year rolls ahead we will hear more on this front. The challenge for businesses is that the fog will not clear until after the election in September. That?s a long time for an economy to be in a holding pattern.

Having said that there are some external factors that will have an influence on our economy. The Australian dollar is still strong relative to other currencies as Australia is still being seen as a safe haven. There are some pundits who believe that Australian dollar could trade as high as US $1.25 this year. This will negatively impact industry especially in the manufacturing, education, tourism sectors that are still suffering from the effects of a high dollar.

Moreover when it comes to outsourcing as I have stated on many occasions our high dollar only amplifies how much less expensive it is to consider offshoring ones business processes. On the other hand if our dollar rises too much it could put pressure on the mining sector as our raw materials would become prohibitively expensive. Besides being seen as a safe haven this contrasts with the fact that almost every other country in the world wants to devalue its own currency and we only have to look to what?s happening currently in Japan as evidence of that.

There is no doubt about the health of the Chinese economy and veracity of its economic statistics. It recently released export figures that showed a jump of 14.1% over the past year. The increase didn?t however match goods movements? reports on imports by trading partners according to UBS. Other statistics which should conform to ?Benford?s law? do not.(Benford?s Law could be used as an indicator of accounting fraud) Benford?s law has been used to show that the macro economic data the Greek government reported to the European Union before entering the Eurozone was shown to be probably fraudulent, albeit he is after the country joined. These inconsistencies do not prove China is manipulating data, but it is anecdotal evidence.

The US economy slowdown from mid-2012, partly due to the US election and the unprecedented focus on the outcome seems to be behind us now as is the fiscal cliff for the moment and their economy is starting to show signs of picking up. The Dow Jones is just below its record high, and some indices are at new highs. The Dow Jones Transport index is seen as a reflection of the state of the US economy. It consists of 20 companies involved in various transport related activities: airlines, railroads, trucking and delivery services dominate the index. It recently reached a record high, which should mean that the US economy is getting stronger. Thus we should see a modestly strengthening US economy as we move into 2013 and that is a good thing.

The real risk for the global economy is Europe, specifically Spain and Greece who are in a depression, the Eurozone?s fiscal compact is not working and any further austerities measures will only make things worse with unsustainable levels of unemployment in some European countries. There is a ticking time bomb in sovereign bonds that will soon need to be refinanced. There seems to be a propensity for European Governments to ignore some of the issues and somehow muddle their way out of the mess.

The other lucking issue will be the Middle East, which is showing no signs of stabilizing as well as new fronts opening up in North Africa in the war against terrorists.

So on balance and with all due consideration I think we will see further growth in outsourcing from the Australian market, as predicted in our 2012 Australian BPO industry report. I also believe that we will see the rise of the back-office and shared services as a way for Australian organisations to take layers of cost out of their operating structure to offset the high cost of doing business in Australia.

Source: http://thesauce.net.au/looking-ahead-at-the-year-to-come/

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