AMP Capital head of investment strategy and chief economist Shane Oliver has named the end of the mining investment growth drag and the rise of non-mining investment as among the reasons for an optimistic outlook on the Australian economy.
“The growth drag from falling mining investment is nearly over,” Mr Oliver said in the latest edition of Oliver’s Insights.
“Mining investment peaked at nearly 7 per cent of GDP four years ago and has since been falling at around 25 per cent per annum, knocking around 1.5 per cent per annum from GDP growth.
“At around 2 per cent of GDP now, its weight in the economy has collapsed reducing its growth drag to around 0.4 per cent this year and it’s near the bottom.”
At the same time, non-mining investment was earmarked to rise in 2017.
Though business investment in this area fell 3.5 per cent this year compared to last year, “this is the best it’s been since 2013 and once mining investment is excluded this turns into an 8 per cent gain for non-mining investment”, Mr Oliver said.
Other reasons also included the rise in public investment, which increased 14.7 per cent this year, as well as the volume of net exports.
“Finally, profits for listed companies are rising again after two years of falls,” Mr Oliver said.
“This is a positive for investment and the flow of dividends helps household incomes.”
For investors, Mr Oliver recommended “look[ing] for superior sources of yield”, ensuring “a well-diversified portfolio of stocks paying decent dividends” and Australian shares for income but global shares for capital growth by “continuing decent exposure to global shares relative to Australian shares”.
