5 Economic trends shaping 2018

Posted on 13 March 2018

2018 has already been a turbulent year for the global economy, with recent volatility in the stock market sparking some concerns for the future. So what major factors are currently influencing the Australian and international economies – and how will these shape the year ahead? Here are some of the economic trends everyone’s talking about.

1. Australia’s housing market may be set to weaken
After a six-year boom, which has seen the average value of Australian homes increase by over 40 percent, the property market is finally starting to level out. Last year saw a slowdown in price growth, and this is expected to continue in 2018 due to tighter lending restrictions and housing oversupply.

Sydney has experienced the biggest market shift – with housing prices dropping 2.1% from September to December last year, and set to decline further in 2018. Instead, investors may turn their sights to smaller capital cities like Hobart and Canberra, which experienced the highest growth in the last quarter of 2017.ii

2. Cryptocurrency is on the rise
Investors flocked to buy Bitcoin in 2017, sending its value skyrocketing. But before you jump on the cryptocurrency train, which has also experienced significant price swings, you need to understand how it works.

Bitcoin and other cryptocurrencies are essentially digital peer-to-peer payment systems that allow consumers to buy products and services online, without cash and with no involvement from banks. Because cryptocurrency isn’t considered ‘money’ and isn’t tied to a specific country, it’s largely unregulated – but that’s about to change.

The Australian Taxation Office is currently setting up a taskforce to ensure users pay capital gains tax on their Bitcoin investments. The Australian Securities and Investments Commission is also scrutinising Bitcoin usage and has developed stricter guidelines to regulate cryptocurrency trading.

3. Australians are pinching pennies
Many Australians are likely to tighten their belts further in 2018 to deal with rising interest rates and energy costs. Debt levels are also at an all-time high, with recent statistics showing our debts to be worth 221% of our net disposable income – up from 129% two decades ago.

As a result, Australians are thinking carefully about where they paycheques are going. In the 12 months to September 2017, household spending rose by just 2.2% – compared to 2.6% the previous year – as consumers shift their focus towards paying off their debts and building up their savings.

4. Overseas uncertainties persist
The global economy got off to a rocky start in 2018, with unexpected volatility affecting share markets worldwide in February. Before these falls, however, investment, manufacturing, commodities and trade were all picking up, and growth was forecast at above 3%. As volatility is a natural part of the market cycle, the economy has already started to rebound.

Geopolitical risks also spiked during the last year in the wake of Donald Trump’s presidential win and the UK’s historic Brexit vote. And while global policy is becoming more certain in the United States and Europe, we’re yet to see how international tensions with North Korea will play out.

5. More Australians are dipping into super early
In the 2016–17 financial year, Australia’s Federal Treasury reported that $290 million was released early from superannuation on compassionate grounds – up from $42 million in 2000–01. Of more than 21,000 applications approved in 2016–17, around 15,000 were requesting an early release for medical reasons.vi The average amount released was $13,644.

This trend reflects the rising out-of-pocket costs for healthcare and the importance of preparing financially for unexpected medical issues. The purpose of super is to fund your retirement lifestyle, so before you find yourself having to dip into your savings early, speak to your financial adviser about ways to keep your nest egg secure.

i CommSec, Economic insights, January 2018.
ii CoreLogic, Hedonic Home Value Index, January 2018.

iii Organisation for Economic Co-operation and Development, Household debt (indicator), accessed January 2018.

iv Australian Bureau of Statistics, Australian national accounts, 2016–17.

v World Bank Group, Global economic prospects, January 2018.

vi Australian Treasury, Early release of superannuation benefits, December 2017.

vii Australian Department of Human Services, 2016–17 Annual report, 2017.