We attended the Chief Economists’ Forum Breakfast yesterday. As always, the line-up of speakers was exemplary.
The general consensus was that the US will be in a recession later this year, albeit a mild one, whilst Europe is already in one. Australia, once again, might be the “Lucky Country” and escape a recession given the resurgence of trade with China and the boom in demand for our resources. However, the fight against inflation will continue for a while yet resulting in higher interest rates for longer. The consensus is that rates will remain on the up and up this year, and likely to remain at those elevated levels until about 2025 before there is likelihood of them being reduced as inflation is still stubbornly high. In fact, the CPI numbers came out last night in the US and it was 6.4% versus an expectation of 6.2% so the inflation fight is not over yet!
On Property, the view was more negative given mortgage pain is going to remain for longer and, in the lower socioeconomic areas, this pain will be significant unfortunately. However, on the whole, due to increased savings during the covid lockdowns as well as an extremely strong labour market, households in Australia are incredibly resilient and should be able to largely withstand the short-term pain over the next couple of years.
Pleasingly, the consensus was that equity markets, whilst will remain volatile this year, should be positive in 2023 with a ‘Neutral’ stance towards US Equities but positive towards Australian equities and fixed interest. There have been some ‘Greenshoots’ that, despite macroeconomic headwinds, are positive developments for this year and beyond. The unusually warmer European winter has provided a boost to gas storage and helped ease the burden from the energy crisis that developed last year due to the conflict in Ukraine. In addition to this, China accelerating the end of its Covid-Zero policy (due to fears of political and social unrest and economic woes) will provide a significant boost to global GDP. The resulting opening of trade should also ease the supply chain disruptions we have faced over the past 2 years. This could be deflationary for prices. However, the concern is that this resurgence of trade and boost to the global economy continues to fuel inflation, making the job of the Central Banks even harder.
On all accounts, inflation seems to have peaked in the US and Europe towards the end of 2022 with Australia now nearing the peak as well. Fingers crossed that the biggest ever hiking cycle is nearing the end and the expectation of a mild recession in the US and none in Australia does in fact ring true.
Please click on the links below to view the presentation slides:
- A review of Australia’s economic landscape | Chris Paton
- 2023 outlook – worse macro, better markets | Scott Haslem
- Policy, the budget and risks for investors | Nicki Hutley
- The US, Euro area and UK – economic and financial market outlook | Matthew Peter
- Dragon awakening – will China’s economy fly again? | Angela Jackson