The International Monetary Fund (IMF) is predicting a tough year for the global economy and has cut its forecast for economic growth in Australia to just 1.7%.
World Economic Outlook
This morning, the IMF released its updated World Economic Outlook. In it, the monetary organisation has revised down its economic growth forecast for Australia this year from 2.1% to 1.7%. The forecast for 2020 is slightly better at 2.3%, but also fell 0.4% from the previously predicted 2.7%.
The IMF also revised down its estimate for global growth from 3.2% to 3.0% for this year as geopolitical concerns and trade tensions continue to dampen the growth outlook.
The video below is a snippet from Episode 24 of The Australian Investors Podcast where macro expert Vimal Gor gives his take on the state of the Australian economy.
We Really Are The Lucky Country
Australia is now in its 29th consecutive year of economic growth, an impressive feat unmatched by global peers.
If I were to be cynical, I might say that for the most part we have simply been very lucky. In the grand scheme of things, Australia neither creates nor produces much of any significant value, with the largest contributions to our Gross Domestic Product (GDP) coming from what we dig out of the ground. We had no say in the riches that were bestowed upon us but we have benefited greatly from their existence.
Whether you consider it richly deserved or not, the question that remains is how much longer will the streak go on? Unfortunately, that question is impossible to answer. At some point in the future the streak will be broken, it’s inevitable if we simply allow for the passage of time.
Implications For Your Investment Portfolio
Exactly when Australia will face the dreaded “R” word is not necessarily all that important for you and your investment portfolio. Depending on your stage of life, it may pose different challenges but the basic fundamentals of buying shares rarely change.
Regardless of the prevailing economic environment, companies that offer a sought-after product or service, that possess a durable competitive advantage and have the ability to leverage that to earn above average financial returns, will always serve you well. If not in an absolute sense then at least in a relative sense. In the event that they don’t, I think we have much bigger problems than simply your investment portfolio.
In the aftermath of the Global Financial Crisis, many high quality ASX companies were trading at very depressed valuations. For example, shares in Macquarie Group Ltd (ASX: MQG) fell to as low as $20 despite continuing to operate profitably throughout the crisis.
Patient investors in Macquarie that held, and have continued to hold, their nerve have been rewarded handsomely with the share price up more than 600% in less than a decade. Allowing for annual dividends paid along the way, the total return becomes more like 800%.
Recessions are typically coupled with fear and panic as investors worry about the impending doom that is about to descend upon them. However, I’d propose that if the dreaded recession did make its way to our shores, you remain calm, keep an eye to the long-term and stick to the plan.
That’s not to say some minor tinkering won’t be in order, but wholesale changes driven by fear and panic are almost certainly going to result in sub-optimal outcomes.
What You Can Learn From Warren Buffett’s Investing Strategy
[ls_content_block id=”14946″ para=”paragraphs”]
At the time of publishing, Luke has no financial interest in any companies mentioned.
