The Australian economy appears to be teetering on the edge of a recession, with almost as many indicators suggesting a dramatic fall in economic activity as indicators suggesting continued strong growth. The key issue continues to be inflation.

The latest Consumer Price Index (CPI) figures provided some hope, showing inflation fell from 6.8 per cent in April to 5.6 per cent in May, the lowest reading since April 2022.

It appears that the sharpest rate hiking cycle since the 1990s is starting to take effect, with meaningful declines in headline inflation and economic growth both domestically and globally. At this stage, most major economies have avoided slipping into recession, although leading indicators are pointing to further weakness in the quarters ahead.

Consumer spending has proven to be stubbornly persistent over the last 12 months (perhaps due to significant savings during the pandemic and the period of record low interest rates), but more recently there are signs that consumers are curbing their discretionary spending. The online booking service, Booking.com.au, and other leaders in the short-term rental market are reporting a sudden and dramatic fall in bookings as holidaymakers decide to save their money and stay at home. Retail spending also appears to have fallen off a cliff, with large national retailers such as Best and Less, Adairs, Domino Pizza and the Retail Food Group all reporting a sharp slowdown in retail trading figures.

Against this, employment remains strong, offsetting the impact of higher interest rates for many.

Given the backdrop of rising interest rates and expectations of an economic slowdown, most global share markets delivered surprisingly strong returns over the 12 months to 30 June. In particular, Europe and Japan were very strong, as was the tech sector in the US. Australian shares defied bearish expectations, driven largely by resource stocks benefitting from renewed China trade, as well as outstanding return in our relatively modest tech sector.

Australian house prices fell around 10% from their peak according to data from CoreLogic, bottoming out in February 2023, with low turnover and a tight rental market supporting prices. It remains to be seen how the more recent rate rises, fixed rate loan expiries and further economic weakness might affect the property market in the near future.

The outlook and implications for investors

The year ahead is likely to see short term volatility given the risks of entrenched inflation, recession and corporate earnings. Overall though, it is likely that central banks will be able to get the job done, paving the way for confidence and recovery.

We remain “cautiously optimistic” and in light of the above factors, continue to suggest a diversified, long-term approach will produce results over time.

Economic indicators – 30 June 2023	1 year % total return
Australian Shares	14.8
Global Shares (hedged)	14.6
Global Shares (unhedged)	20.4
Australian Property Securities	7.5
Australian Bonds	1.2
Global Bonds (hedged)	-1.2
Cash	2.9

 

Hear more about recent market performance and the outlook for investors

What’s been going on in the economy in the past year, what that has meant for the financial markets? AGS Financial Group director and founder Alex Berlee will guide you through the investment update.

1.00pm AEST on Tuesday 15th Aug 2023
1.00pm AEST on Wednesday 16th Aug 2023

Click Here to Register

(All registrants will be able to access the event recording, in case you can’t catch the full session on the day)

Published : 10 Jul 2023