16 Jan 2014

As the global economy enters a period of transition and normalisation in 2014, AMP Capital chief economist Shane Oliver has provided five indicators to keep an eye on.

United States wages growth; global business conditions indicators; European bond yields; Chinese lending; and Australian consumer spending are Mr Oliver’s five measures to watch in 2014.

“Global business indicators, or purchasing managers’ indexes (PMIs), have been drifting higher, auguring well for improved global growth but thankfully not a global boom,” he said.

“Wages growth in the US as a guide to how quickly inflation will pick up there, and so therefore when and how quickly US monetary tightening will occur,” he said, adding that so far US wage growth is still very low.

Last year, in many ways, marked the simmering down of the eurozone crisis, but Mr Oliver recommends keeping an eye on the spread to German bond yields of Italian and Spanish bonds as a good guide to whether the crisis is continuing to subside.

“So far, the news remains very good, with the spread continuing to contract,” he said.

Closer to home, Australian consumer spending indicators like consumer confidence and retail sales are a good measure of whether the benefits of interest rate cuts are flowing on from housing to the broader economy, Mr Oliver said, while in China, lending should trend sideways.

Mr Oliver predicts a pickup in Australian growth to around 3 per cent by year’s end as housing and consumption recovers and export volumes improve, partly offset by a further slowdown in mining investment and budget cutbacks.

Written by James Mitchell for investor daily.

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