Challenging conditions expected to continue for markets and super performance.
2022 was a challenging year and from a national and global perspective, economic momentum is expected to continue to slow in 2023 as central banks try to curb inflation.
Inflation figures are well above average around the world, so interest rates are predicted to continue to rise with the aim to moderate household spending and reduce inflation.
As a result, recessions are forecast in 2023 for many major developed markets including the US and Europe. However, inflation figures are forecast to remain elevated compared to those experienced over the past decade.
- Weak growth for 2023 is forecast, representing a significant slowdown from 2022’s pace
- The risk of an Australian recession is modest compared to other developed markets
- Australian inflation is not projected to track as high as in major overseas economies
- The RBA is not expected to lift interest rates to the same heights as other countries.
The Australian outlook
AustralianSuper’s Head of Macro Research, Amber Rabinov says, “Forecasts for the Australian economy are for a significant slowing in growth in 2023, but compared to the rest of the world, we’re still the lucky country.”
Australia’s best summary statistic of economic activity, Gross Domestic Product (GDP), rose 0.6% in Q3 20221, returning back to pre-covid trends.
“This GDP figure confirms a strong economy driven by solid consumption growth. It doesn’t change our view that Australian economic growth will run below trend in 2023 due to the impact of policy tightening (rising interest rates) on domestic demand,” Amber says.
“We still expect the Australian economy to fare better than other major developed economies given the resilience of resource exports, the recovery of services exports in late 2023, and China’s border reopening, while the rundown of excess savings will somewhat limit the impact of recent and future rate hikes,” Amber said.
Consumer and business confidence
According to the Westpac Consumer Confidence Index2, Australian consumer confidence has been on a gradual downward trajectory, with November 2022 hitting the lowest level since the Covid crisis in April 2020 and the “recession we had to have” in the early 1990s. Business sentiment has remained more resilient, with the NAB Business Confidence Survey3 softening but remaining positive.
Despite these index results, there are still some decent numbers from the 2022 September quarter regarding consumer and business activity including4:
- Our economy grew 0.6 per cent during the 2022 September quarter – up 5.9% compared to last year’s September quarter
- Airline activity rose 25.2% with spending on overseas trips growing by 58%, and international travel reaching 56% of pre-covid levels
- Construction is strong on the back of major projects, rising 2.3%
- Transport services rising 13.9%, reaching 70% of pre-covid levels
- Catering and accommodation growing by 5.5%
- Rural exports surged 9.8% on the back of wool and cotton
- Private business investment – rising 2.5%
- Home-building activity – rising 3.4%.
This is anticipated to bode well for forecasts for our domestic economy when compared to forecasts for major international economies such as the US, UK and Europe.
The RBA is predicted to keep interest rates on the rise until at least early 2023 to try and reel in inflation.
AustralianSuper’s investment strategy
As the economic cycle progresses, the investment team will continue to adjust the portfolio. This helps manage risk and allows us to take advantage of investment opportunities with the potential for long-term growth in member returns.
In anticipation of expected global economic downturns, AustralianSuper has moved to a more defensive strategy, decreasing exposure to listed equities and increasing cash and fixed income opportunities. The trigger can be switched to a growth strategy upon signs of an uplift in the economic cycle to take advantage of renewed economic momentum.
With a long-term focus on managing the portfolio through the current market cycle, our 280+ investment team is looking at long term trends, including the potential impacts of technological disruption, climate change, geopolitics and increased government intervention. This research helps inform our thinking about the risks and opportunities that lie ahead as we build a robust portfolio for the future to meet our investment objectives and help members reach their best retirement outcome.
Looking ahead – 2023 and beyond
After more than a decade of strong growth, the world is entering a period of weaker economic growth which may see more modest super returns compared to previous years.
The good news is that inflation in Australia is expected to cool from current levels, but still higher than recent pre-covid figures. Wage growth is forecast to peak at 3.75 - 4%5 within the next few quarters as conditions remain tight and public sector wage growth picks up in line with stronger private sector trends. This pace of wages growth is broadly consistent with inflation returning to the RBA’s target of 2 - 3%6.
1. Australian Bureau of Statistics, Australian National Accounts: National Income, Expenditure and Product, September 2022.
2. Westpac-MI Consumer Sentiment November 2022.
3. NAB Monthly Business Survey October 2022.
4. 12 things to know about the Australian economy right now, Australian Bureau of Statistics, December 2022.
5. Reserve Bank of Australia, Statement on Monetary Policy – November 2022 Economic Outlook
6. Reserve Bank of Australia, inflation target.
This information may be general financial advice which doesn’t take into account your personal objectives, financial situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement available at australiansuper.com/pds or by calling 1300 300 273. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at australiansuper.com/TMD. AustralianSuper Pty Ltd, ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898.
Investment returns aren’t guaranteed. Past performance is not a reliable indicator of future returns. This may include general financial advice which doesn’t take into account your personal objectives, financial situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement, available at australiansuper.com/pds or by calling 1300 300 273. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at australiansuper.com/TMD. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898.