Year 2018 was a volatile year for the Australian sharemarket, which slumped more than 10 per cent.
The Australian dollar also took a hit, down 8.5 per cent against the US dollar.
But with global economic concerns set to continue, is Australia in for a similar 2019?
China and the United States, their domestic issues and the relations between the two, were the biggest international factors to influence the world and Australian economies in 2018.
AMP Capital Chief Economist Shane Oliver says the ongoing trade tensions between the world's two biggest economies have unnerved investors.
He says it would be in the best interests of everyone for a solution to be found.
“Don't forget, Donald Trump does not want the US economy to go into recession and unemployment to rise because he wants to get re-elected in 2020 so he wants to strike a deal, likewise with China, so I think that issue will gradually recede as the year proceeds and that in turn will help Chinese growth pick up,” said Mr Oliver.
St George Chief Economist, Besa Deda, says it would help heal China's economic slowdown - currently growing at its slowest pace in nearly 10 years - and help to keep the US bubbling along.
“The US economy is in incredibly good shape, the unemployment rate is at a very historic low, and consumer spending remains in good pace, and while fixed business investment has come off it is still growing strongly,” Ms Deda said.
Ms Deda adds the health of the US economy was enough to encourage the US Federal Reserve to continue to lift interest rates there nine times since 2015, with rates now climbing above Australia's official cash rate.
“That also tends to pressure the Australian dollar lower on interest rate differentials and a weaker currency means the cost of importing goods and services into Australia rises.”
But Shane Oliver suggests the US central bank might not raise rates this year.
“My feeling is the US central bank, after having increased interest rates quite substantially from their lows a few years ago, will have a pause as we go through 2019, maybe not the whole year, but at least through the first half of the year the US central bank will go on pause on the view that they've already got interest rates up to levels they're a lot more comfortable with, inflation is pretty much under control, they can sit back a little bit.”
Any global economic slowdown would hinder demand for Australian exports, especially commodities to China.
While international factors may influence the direction of the Australian economy next year, Shane Oliver says locally, it's the housing market which may have the biggest impact.
“So that run-up in house prices that we had over the 5 years to 2017 was fantastic in driving community perceptions of wealth - those who had a house felt wealthier and that's about 60 per cent of households: if they felt wealthier they spent more and that helped consumer spending in NSW and Victoria and kept the Australian economy going through that mining slump period. Now that is going in reverse, and you're getting what economists call a 'negative wealth effect' where house prices come down, people feel poorer and they spend less so that's going to be a big drag on our growth next year,” Mr Oliver added.
Mr Oliver says the Reserve Bank would then need to prop up the economy as a result - but cutting official interest rates in the second half of 2019 is a view not shared by St George's Besa Deda.
“We don't think the RBA will be moving rates any time soon, we're not looking for a movement in the cash rate in 2019 or 2020. If we get some help from the RBA that will be because the downturn in dwelling prices, particularly in NSW and Victoria that's leading the national housing slowdown, that then feeds into the consumer in quite a negative way,” Mr Oliver added.
Julia Lee, equities analyst at Bell Direct, says given the macroeconomic environment, 2019 could be tough for many investors.
“There are times in the market when it's very easy to make money, and then there are times when it's pretty tough and this is one of those tough times and there's nothing wrong with looking at capital preservation rather than growth and it might be the smart move in the first half of 2019,” Ms Lee said.
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