Government action (or inaction)

Jay Sivapalan

Janus Henderson

We believe that 2020 will be the year that really separates the winners from the losers in the monetary policy ‘experiment’ of the past few years. 

Livewire readers will be aware that monetary policy has reached extreme levels around the world, arguably now doing more harm than good. Through this next critical phase, economies with the ability, and more importantly, the willingness, to complement existing monetary policy with government support will be better placed to continue to grow; the key here is the concurrent deployment of fiscal policy.

Conversely, economies that aren’t in a position to provide government stimulus – those shackled with elevated levels of debt or constrained by demographics – will struggle to keep their economies expanding.

While developed economies such as the US have a greater ability to fare well through 2020 and beyond, economies like Europe and Japan are more at risk from an economic growth perspective. These markets’ economic risks result from elevated debt levels, fiscal policy inability and demographic factors.

In Australia’s case, debt levels are healthy in the government and corporate sectors, but obviously stretched in the household sector. However, Australians’ ability to service their household debts (taking income levels into account) remains strong.

Australian households’ net worth has also grown strongly over the past decade (when the asset side of the ledger is included).

Chart 1: Australian households’ liabilities and assets

Source: Janus Henderson, Bloomberg, ABS. to 30 June 2019. Data for households

Demographically, Australia’s population is much less challenged than many other parts of the developed world.

Chart 2: Population demographics

Source: Janus Henderson, The Factbook. As at 2016

While the outlook and opportunity for Australia remain positive, there is a growing call for the government to play a more active role in supporting economic growth.

We expect to see a more robust contribution in the form of further government infrastructure initiatives and fiscal policy over 2020.

We feel this will ensure Australia enjoys its 30th year of uninterrupted economic growth. We are indeed in the ‘lucky country’. 

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This wire is part of the ‘One thing investors can’t ignore in 2020’ series. To download the full ebook please click here.

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Jay Sivapalan
Head of Australian Fixed Interest
Janus Henderson

Jay Sivapalan is Head of Australian Fixed Interest and a Portfolio Manager at Janus Henderson Investors. He contributes to both interest rate and sector strategies employed within portfolios and has 22 years of financial industry experience.


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