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2020 TIME TO HIT THE GROUND RUNNING!
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The Banking Industry
Starting from mid-2020, the banks which dominate the sector will have to increase their total capital to 18 per cent, from a minimum of 10.5 per cent now. Typically, banks carry a buffer above the minimum of at least an additional 2 percentage points.
Smaller banks, including the likes of Kiwibank, TSB, Cooperative and SBS will need to have total capital of 16 per cent, up from what they hold now but below December’s proposal.
Larger banks need to hold more capital than capital than their smaller rivals as if one were to fail it could have a severe impact on the economy.
More and more, Australia and New Zealand’s economies depend on global markets. We can be lifted up by policies made in Beijing, but we can also be brought down by mistakes made on Wall Street and Silicon Valley. And there have been plenty of the latter in history.
2019 was the year of the WeWork saga. A hot American real estate start-up funded with way too much venture capital money, it was going to float on the stock market for billions of dollars. Instead it suddenly stumbled and fell. The float was cancelled. The CEO was sacked. A whole lot of dodgy dealing was exposed. The company is now slashing staff and trying to avoid bankruptcy.
WeWork points to a sickness in the American start-up bubble. In 2019, WeWork’s problems looked isolated, but are they? In 2007, the pension funds that were having problems with subprime loans looked isolated too. It was only by 2008 we realised they were a symptom of a big problem that led the whole word into the global financial crisis.
What will the economy be like in 2020?
The U.S. economy in 2020 will be like a BBQ grill about an hour after you’ve taken the steaks off—still kind of hot, but not blazing. The 2017 tax breaks that companies enjoyed will have worn off by then, and even though the U.S.-China trade war may be on the road to resolution, companies have pulled the reins hard enough in 2019 that it will be tough to jump start growth. The Federal Reserve is more likely to raise interest rates rather than cut them, but if the economy starts to slow dramatically, that may change. In other words, fiscal stimulus in the form of lower rates doesn’t seem likely.
The global economy on the other hand, will start to pick up some steam after being in the doldrums the past few years. China’s growth is admittedly slowing, but it is still growing at a better than 6% clip, and the Chinese government is doing whatever it can to keep the furnaces hot. China’s neighboring economies should see more growth as low interest rates and a cooling of the trade war continues.
Keep an eye on the U.K. now that PM Johnson has his parliamentary majority. He’ll be opening the vaults at 10 Downing street and spending Great Britain’s way to growth as it Brexits away. Germany, on the other hand, needs to find a way to stop its slowdown and find a path to growth. As Europe’s biggest economy, when it drags the whole EU grinds with it.https://www.investopedia.com/2020-predictions-for-the-global-economy-markets-and-investors-4780156
Keep An eye on the Gold Market!