What’s the economic outlook?

With a AAA credit rating, relatively low employment, stable banking sector and now a solid budget surplus, Australia’s economic score card is looking good. Especially when compared with most of our trading partners.

But there are some risks ahead. Some industries are booming, but overall the economy is growing at a much slower rate than in previous years. The introduction of the carbon tax from 1 July 2012 will hit some sectors hard and see increasing costs for businesses, individuals and families.

While some provisions in this year’s budget are aimed at cushioning the impact, the 2012-13 financial year will be difficult for many. High income earners and businesses in particular have been targeted in the government’s push to create savings.

With the government determined to deliver a budget surplus, much of the responsibility for influencing economic growth will fall on the Reserve Bank of Australia (RBA). The fiscal constraint shown by the government creates an environment where interest rate changes will be increasingly important.

Inflation is relatively low and is unlikely to cause concern. But large-scale job losses mean that creating conditions for employment growth in the coming year is vital.

Any easing in monetary policy will potentially boost economic growth, but reduce returns for investors holding cash and bonds. Returns for shareholders are also at risk from increasing business costs.

Volatility in our market will continue until confidence is restored particularly with ongoing concerns in Europe particularly Greece and France. Political change overseas and Australia could be the catalyst for increased confidence

It’s important to review your investment portfolio to ensure that your assets and strategies remain appropriate given the changing conditions and budget measures.