What are the bright spots and danger signs to keep an eye on in the year ahead? Here are our top five.

The trials of Trump
Political pressures are increasing around Donald Trump as he faces the spectre of the Mueller inquiry. This is compounded by the upcoming midterm elections, which could see a power shift away from the Republican party.

Trump’s reaction to these challenges could have profound effects globally, as he may double down on his “America first” mantra, and take an even more active protectionist and isolationist position to help shore up his domestic support. Trade relations with China are one field where these tensions may be played out and this could send shockwaves through the global economy, as the two economic superpowers seek to gain ascendancy.

Will the inflation/interest gridlock break out?
Low interest and inflation numbers around the world have persisted for some time now as central banks seek to stimulate growth. Despite their efforts, inflation has remained doggedly low, but is all this about to change? There are signs in the United States that inflation may take an upswing in 2018 and the Federal Reserve may adjust its stance. Higher rates could have a downward impact on stock prices.

Domestically, positive economic signs are still on somewhat shaky ground, which will tend to keep a lid on the Reserve Bank’s likelihood of raising rates, but a rise or two is not out of the question.

The China factor
Our largest trading partner naturally has a major influence on our fortunes at home, so it always pays to keep an eye on their policies and performance. The Chinese government has continued its expansionary trajectory to drive its ambitious GDP goals, but this is subject to risks and there is the potential for reforms to be implemented to stabilise their economy, which in turn may constrain growth.

The substantial levels of public and private debt are one risk factor hanging over the Chinese economy, and the potential for protectionism from the United States may put the brakes on global trade and Chinese growth.

On the plus side, there is a push to shift their economy from industry to service sectors and the growing Chinese middle class will create more domestic demand. These trends will help build resilience in their economy.

On the home front
The more buoyant commodity prices of recent times have served to support our export and growth performance in Australia, but this may be masking some weak spots in our domestic economy, such as contracting housing construction, and tenuous consumer and business confidence. If and when commodity prices begin to fall, these weaknesses may become more exposed.

There have been some welcome signs in non-mining investment and public infrastructure spending, and the economy continues to transition to non-resource dependence. This all serves to support our GDP, but will this be enough to offset sluggish wage growth, patchy consumer spending, and a downturn in the housing cycle?

Property boom or bust?
There is no doubt that the heat has well and truly come off the booming Sydney and Melbourne markets, but the outlook for property in 2018 is a mixed bag. There are several factors at play here.

The construction boom in high-density dwellings of recent years is seeing a glut of supply coming on stream in the major centres and this will tend to keep a lid on price growth. Add to this the intervention of the regulators in an attempt to limit credit growth and stricter controls on foreign housing investment, and the result is less upward pressure on prices.

While Sydney and Melbourne may see only moderate growth, there is a mixture of possibilities around the rest of the country. Perth and Darwin are still in the doldrums, growth in Adelaide is only moderate, Brisbane has some positive signs aided by population growth, and Hobart seems to be experiencing a surge.

Relying on predictions in one sector, however, will always remain a risky business. Investors would be well advised to keep a prudent approach that employs diversification across all asset classes for more manageable long-term results.

What do you think will be the most telling factor to watch in the new year? Share your thoughts below.

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