Quarterly economic update: Oct – Dec 2023

Strong gains for share markets around the globe through December saw the close to a turbulent, but financially rewarding year. International shares in particular benefitted from stronger than feared growth, an expectation of easing interest rates, and a booming tech sector (based on AI).

Locally, inflation continues to bite

With a new Governor at the helm of the RBA, and inflation tracking down since its peak in the December quarter 2022, public sentiment hoped that rate rises would be paused. However, the RBA delivered another rate hike at the November 2023 meeting, bringing the official interest rate to 4.35% – the highest level since 2011.

It is likely that an increase in the monthly CPI indicator was a key trigger for the RBA to raise rates, as the monthly indicator rose to 5.2 per cent in August, and then rose again to 5.6 per cent in the September data. However, the next monthly data point, for October (which came out after the November rate rise) had inflation decreasing to 4.9 per cent.

Services inflation remains high and was the primary driver of stronger-than-expected underlying inflation in the September quarter.

Interest rates – will they, or won’t they?

A survey of 40 economists by the Australian Financial Review shows that the median forecast is that the RBA will start cutting rates in September 2024, whilst the bond market is projecting an easing of rates by mid-2024.

The RBA will meet only eight times in 2024, reduced from 11, beginning in February – following an independent review ordered by the Treasury. With the RBA governor’s commitment to return inflation to the target range of 2-3%, it is very difficult to say with certainty whether rates will rise, stay flat, or be cut.

Hot Property

House and unit prices grew steadily in 2023, with a national annual growth rate of 5.42% (6.54% in capital cities). The main drivers include the highest net overseas migration levels ever recorded, few vacant properties and stronger demand for established homes due to the construction industry facing capacity and cost issues.

This growth forecast is expected to continue as most experts believe demand for housing will continue to outstrip supply. However, Australia’s cost of living increases and interest rate uncertainty will keep biting—leading to weaker price growth than previous years.

The rental market remains in a critical shortage of available dwellings according to SQM Research. Due to the ongoing supply and demand imbalance, the market is expecting capital city rental increases of 7-10% for 2024, on top of an average 10% market increase in 2023.

The outlook and implications for investors

A number of negatives continue to cloud the outlook for investors, namely persistent inflation, recessionary risks, concerns for the Chinese property sector and economy, and geopolitical risks (not least of which are the ongoing war in Ukraine, and now the Israel/Hamas war and the implications of regional escalation).

Overall, we are hopeful that the prospects of easing inflationary pressures and interest rates will provide a supportive backdrop for financial markets through 2024, and continue to favour a reasonably growth-oriented approach for diversified, long term investors.

Asset Class summary – 31 Dec 2023  1 year % total return
Australian Shares 12.4
Global Shares (hedged) 19.9
Global Shares (unhedged) 21.4
Australian Property Securities 16.9
Australian Bonds 5.1
Global Bonds (hedged) 5.3
Cash 3.9


Published : 30 Jan 2024

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