It's been a dramatic start to the year with the recent devastating and unprecedented floods, bushfires and cyclones affecting tens of thousands of people all across Australia.
Who could have predicted events of this size and impact? And what lies ahead in 2011 for investors and the Australian economy generally in the wake of these disasters?
For starters, most Australian businesses will be negatively affected by the recent floods. The main areas of impact are likely to be in coal mines, transport, insurance companies, agriculture and tourism. Consumers can expect flow-on effects such as price rises in some foods.
Some, however, are predicting that the negative economic impacts will be temporary, pointing to the ensuing clean-up and rebuilding phase as helping to drive the economy for years to come, with Australian engineering, construction, building products and mining services companies likely to be running at full capacity in this time.
Commodity prices are also likely to remain strong as supply constraints, combined with continued strong demand from China and emerging markets support continuing high prices for Australia's coal, iron ore, copper and other minerals and agricultural products.
Economists are still citing the mining boom as the most significant issue for the Australian economy in 2011, potentially contributing 2 per cent or more to our growth in the year ahead.
The downside of this continued boom might be more interest rate increases to ensure that consumer and housing demand remains subdued enough to stop the economy from overheating and inflation rising.
Of course if the mining boom turns out to be a lot weaker than expected or quickly peters out, maybe in response to problems in the Chinese economy, then the big surprise for 2011 would be Reserve Bank interest rate cuts to stimulate the non-mining part of the economy, filling the gap left by the mining boom.
2011 will be a tough year for the Federal Government, with a number of difficult decisions needing to be made as a result of this natural disaster. At the time of writing, the Prime Minister has announced a once-off taxpayer flood contribution, to be collected through an increase in the Medicare levy for the 2010/2011 financial year. Determined to bring the budget to surplus in 2012/2013 the government has also signalled cutbacks in spending in a number of areas, details of which will emerge in the lead-up to the Federal Budget in May - assuming these decisions can be passed by a delicately balanced parliament!
The local sharemarket has been steadily rising during the last half of 2010, with the psychologically- significant 5,000 points now within reach for both the All Ordinaries and ASX 200's indices. From a low 4262 points on 1 July 2010, the All Ords has risen to its current level at just over 4900 points in the seven months to the end of January 2011. Will the trend continue?
Some commentators are predicting a rise to around 5300 points by the end of 2011. This is still a long way from the high point of 6853 points reached on 1 November 2007, but there are still too many economic unknowns, especially globally, to expect a run like that in the medium term.
Superannuation has also been making steady gains in the latter half of 2010, after a bumpy start to that year. In line with lifts in the sharemarket, super funds are expected to show better overall returns in 2011. Australians contributed more than $107 billion to super in 2010 and we've reached a staggering record $1.23 trillion in total super assets.
Despite the havoc wreaked by the recent floods, general indicators point to a solid year ahead for the Australian economy and for investors. We believe there is no need to stray from the course you've taken with your investments but, as always, you should consider starting the New Year with a review of your goals and a discussion with your adviser.