This month we are not writing about retirement. We are focusing on more concerning world issues.
What a world we live in today. Many of us were surprised at the Brexit referendum in June, and then to top it all off, Donald Trump was elected in November. Whilst there have been many negative comments about Trump, one thing he will do is spend money in America which creates jobs and opportunities, especially for the young ones.
The United States is determined to become a world power and regain its right in world markets. For many years the West has been facing slow wage growth, little economic movement and a rift of inequality between the rich and poor. In my view, this has created an environment where populist politicians and policies can thrive. Looking ahead, we also believe that the European Union will dissolve as politicians don’t deliver what they promise to.
This in turn brings us to Donald Trump. While the details of his policies are still uncertain, they are expected to be pro-growth, pro-inflation and require greater Government borrowing. As a result of Donald Trump winning the election we believe the following points are to be expected:
- Inflation is set to increase;
- Interest rates are to trend upwards over time;
- The US economy is to receive a dose of fiscal stimulus i.e. increased public spending and perhaps lowered taxes.
What does this mean for you? If interest rates increase significantly in the States, there is no reason to believe that we will be immune in New Zealand. Home mortgage rates will increase in 2007, so if you haven’t locked in your mortgage yet, do so now. You will never be certain of the bottom.
Once interest rates increase, we believe property prices will fall from their giddy heights as banks will tighten their lending criteria. Remember, the bank is not your friend in tight economic times. One has to remember that most of our banks are owned by the Australians and they have much tighter rules than we do. This is now flowing on to New Zealand.
The New Zealand sharemarket could be miserable as off shore investors leave our country seeking growth and opportunities elsewhere. With an election approaching next year, the government will be mindful of maintaining a steady pattern, and won’t want any alarm bells to ring for the following reasons:
- Strong tourism with 3.4 million visitors having visited New Zealand over 2016.
- High levels of immigration have also helped our market with 70,400 people becoming residents over 2016.
It will be an interesting year in 2017, and we look forward to your comments. I thank Julie and Tina for writing to us last month.
We wish you all a Happy New Year, keep safe.