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Is US Growth Going to Slowdown?

Well the IMF seems to think so, in it’s latest assessment of the US economy the International Monetary Fund reduced it’s growth forecast for the US by nearly a third.  They also suggested that perhaps there was still some need for the virtually nil interest rates to remain at that rate for the time being.

us-growth-skyscrapers

The estimates of the US economy fell by .8% from the April estimation, to an expected growth rate of 2% in 2014.   Why the turnaround? Well the first quarter results were weak although this was very probably due to the very severe winter impacting on all areas of the economy from employment, housing through to retail sales.

It’s not all bad news, it seems that the IMF considered this to be just something of a blip in the recovery – maintaining the 3% growth estimate for 2015.  The caveat for this though is to increase the minimum wage and keep investing heavily in it’s infrastructure which could be difficult in the political climate.

This reduction in estimates wasn’t entirely unexpected as the IMF had already hinted that this would happen in relation to the poorer growth results in many of the other major economies across the world.  The Ukraine crisis is also having an impact on economic growth particularly if sanctions on Russia are increased.

It’s going to mean that there’s some impact on the markets, employment goals are not going to be reached until 2017, and it’s expected this will be in an environment of low inflation.  It’s one of the reasons that  the IMF is urging the US to keep it’s interest rates low, the markets were expecting a rise after mid-2015 but that could be later now if the advice is heeded.

The US equity market like that of most of Europe is experiencing rises virtually across the board.  This is of course partly due to the low interest rates making investment cheaper and of course a stream of positive indicators.   The pressure will be upwards on shares the longer the interest rates stay low.  There are worries of a market correction within the equity market with many experts hedging fund with safer investments like telcos and utility companies.

You can check the latest share prices and get some excellent investment advice on some of the US media and equity research funds.  Beware though due to the sometimes complicated state tax and federal laws, these are often limited to US only customers, unless you buy VPN services and use them remotely of course.

Richard Hargreaves II

Technical Source: – hide IP software

Economic Dependency Causes Risks

We can see that many political events across the world are heavily influenced by economic links.  Ukraine seeks greater ties with Europe but is heavily reliant on Russian gas as an energy sources.  Russia seeks to flex it’s muscles internationally but is hampered by the fact that it’s economy is almost wholly reliant on selling raw materials like gas to European countries.  Stock markets and currencies tumble when political events cause instability in these relationships.

Australian Economics

Of course some of these links bring economic prosperity to a nation too, take the almost symbiotic link that Australia has with China.  The huge growth in China has required a huge amount of raw materials to satisfy it, as the smog clouds over Beijing testify too.  A lot of these materials come from the nearby resource rich Australia, which has even been dubbed ‘China’s mining pit’.

It’s hard to find an economy anywhere in the world that is so dependent on another, China buys 31% of Australian output.  This is usually incredibly beneficial except that it makes the Australian economy very reliant on how China fares economically.  So last week when a few weak statistics suggested that China’s growth was stalling – Australia got to share the pain.

Many investors already buy Australian stock as a means to leverage the Chinese market.  It’s much safer to invest in stocks and shares in Australian as opposed to the state controlled stock exchange in China.  Chinese restrictive practices have already started to impact it’s growth especially those on digital communication.  Many firms try to avoid setting up headquarters or offices in China due to the heavily filtered internet access.  Companies and individuals are forced to invest in a fast proxy simply to make their usual infrastructure work in that environment – for many it’s simply not worth  the effort choosing to settle nearby in places like Singapore which is not regulated as dramatically.

There is probably little that Australia can do in the short term about it’s reliance on Chinese success.  The worry that the Chinese economy is looking very fragile at the moment is a very real one however. It’s currency is overvalued, there are little sign of productivity gains or the vital structural reforms many hoped for.  Inflation is rising and there is a growing outflow of capital to investment markets abroad.  Australia has little options though to continue to trade heavily with China whilst seeking to develop other trading partners to try and reduce their exposure.

For more information on this subject see this video explanation of how to access Australian media sites.