MLC has released analysis of Tuesday’s Budget and its impact for advisers.

Following last night’s Federal Budget, MLC has prepared an analysis outlining key measures and their implications for advisers and clients.

Key measures proposed

• Tax and cost-of-living: A $1,000 instant tax deduction for work-related expenses and a $250 annual Working Australians Tax Offset will be introduced. The lowest marginal tax rate will reduce to 15% from 1 July 2026 and 14% from 1 July 2027, with Medicare levy thresholds also increasing.
• Investment and property: From 1 July 2027, the 50% CGT discount will be replaced with CPI indexation, alongside a minimum 30% tax rate on capital gains. Negative gearing will be restricted for newly acquired established residential property, with losses carried forward.
• Trusts and small business: A 30% minimum tax will apply to discretionary trusts from 1 July 2028, with transitional relief available. The instant asset write-off will be permanently set at $20,000 for eligible small businesses.
• Superannuation: The Low-Income Superannuation Tax Offset will be expanded from 1 July 2027.
• Health and care: Higher private health insurance rebates for older Australians will be removed from April 2027. Reforms to NDIS, aged care and Support at Home will expand services and adjust eligibility over time.

What this means for advisers

• The proposed changes may result in a review of asset ownership structures across super, trusts, companies and individuals.
• Changes to CGT and negative gearing may affect the way investment outcomes are assessed and modelled.
• Updates to discretionary trust taxation may prompt a review of existing structures and consideration of alternative strategies.
• Simplified tax measures may streamline tax return preparation, while substantiation may still be required where higher deductions are claimed.
• Changes to health insurance settings and EV concessions may prompt review of existing arrangements at relevant points in time.

What this means for clients

• Tax changes introduce a standard deduction for work-related expenses, with the option to claim higher amounts where applicable.
• The Working Australians Tax Offset and tax rate adjustments may affect after-tax income from employment.
• Changes to CGT and negative gearing alter how capital gains and investment property losses are treated over time.
• Adjustments to Medicare levy thresholds may affect the amount of levy payable for some households.
• Changes to private health insurance rebates may affect premium costs for some older Australians.
• Updates to aged care, disability support and government payments may affect eligibility, access and out-of-pocket costs across these services over time.

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It’s about Australians supporting Australian businesses, who in turn support each other right through the economy.

Westpac has released new economic modelling revealing the powerful ripple effect of local spending. According to Westpac economists, Australia could benefit from a $16 billion boost in nominal GDP with approximately 38,000 new jobs if every household redirected $100 of their existing weekly budget into Australian products or businesses.

The analysis estimates more than one third of first-round gains would benefit industries dominated by small to medium enterprises (SMEs), particularly in the retail trade, manufacturing, and accommodation and hospitality sectors.

Westpac Chief Executive, Business & Wealth, Paul Fowler, says backing local businesses is essential for Australia’s prosperity.

“Australia is home to world-class innovators, farmers, winemakers, manufacturers, and service providers who are making an impact globally,” Fowler said.

“By backing local businesses, we’re celebrating what makes our country unique and increasing career opportunities in Australia.

“That’s why it’s more important than ever to make every dollar count. When you choose to spend locally, you’re not just buying a product or service, you’re investing in jobs, supporting your neighbours, and helping communities flourish.

“It’s not about spending more – we know budgets are tight. It’s about redirecting existing spending to support Australian businesses and our country.”

Westpac’s analysis also demonstrates the power of investing in Australian businesses which creates a strong multiplier effect.

“Every dollar you spend with an Australian business has a multiplier effect. Not only does that dollar pay the wages of the business, it travels down the supply chain benefiting other Australian businesses,” Fowler said.

“If you buy a coffee and cookie at your local café, for example, you’re not only helping to pay the wages of the workers in that café, you’re supporting the dairy farmer who produced the milk, the manufacturer who baked the cookie, and the farmers who supplied the eggs, sugar and flour to make that cookie.

“That’s the magic of the multiplier effect. It’s about Australians supporting Australian businesses, who in turn support each other right through the economy.

“Our message to Australian consumers is simple: When you’re at the supermarket, look for products that are Australian made and use Australian ingredients. Choose Aussie wines this celebration season, visit Aussie towns for your summer holiday and consider buying gifts from local businesses.”

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The world is in the foothills of a global capital expenditure supercycle.

In 2013, former US Treasury secretary Larry Summers famously declared that the world’s advanced economies were in a state of secular stagnation, a period of sluggish growth, low interest rates and an absence of inflation. Today, central banks find themselves worrying about the opposite: the prospect of higher-than-target inflation and the need to keep interest rates higher for longer. If these worries remain in the coming years, a key reason will be because the world is in the foothills of a global capital expenditure supercycle.

Our work suggests that transformative thematic macro trends will drive global capex spending up by US$2.5 trillion per year in a base case scenario and US$5 trillion in a high scenario. This translates into a projected 12-24% increase in annual global gross fixed capital formation by 2030^[1].

Since 1945, there have been six significant capex cycles, as defined by periods when capex growth exceeded GDP growth, with the longest stretching across two cycles from the mid-1960s to the late 1970s. Since then, US capex growth has spent as much time below trend GDP growth as above it, as the offshoring of production to Asia led to an investment boom there, especially after China’s 2001 accession. The post-GFC period invited balance sheet consolidation in the US private sector and was not conducive to strong investment growth.

The emerging capex cycle is underpinned by a multitude of structural drivers including the shift towards net zero, efforts to enhance supply chain resilience underpinned by persistent national security concerns, demographics, fast-rising defence spending, and public  infrastructure spending across the developed and developing world.

The move toward a green economy is the largest component of increased infrastructure investment. BloombergNEF forecasts that investment spending will reach between US$2 trillion and US$4.5 trillion per annum, by 2030^[2]. Defence spending estimates since the Ukraine war has structurally increased by $300bn to $700bn p.a^[3]. The decline in working age population ratios is leading to a structural labour shortage, which is compelling employers to substitute labour for capital, by several hundred billion dollars per annum. Meanwhile, technological development particularly in AI is fuelling major investments, with AI data centre expenditures projected to rise by US$100 billion per annum by 2027^[4]. Public infrastructure plans in the US and elsewhere, the reshoring of supply chains, as well as mining capex for the energy transition, each add their own hundreds of billions to the figures.

What a new capex cycle means for investors

If we are on the verge of capex-driven and resource-intensive cycle in the coming years, that is likely to lead to a different market leadership than the last cycle. Indeed, according to our analysis, stock beneficiaries are likely to be primarily in physical asset intensive areas of industrials, resources, and utilities. These are all sectors that lagged or tracked the market in the post-GFC period. Stock beneficiaries are also spread across geographies, not just concentrated in the US. In other words, the investing playbook for the secular stagnation cycle, which favoured long-duration assets, often in the technology sector, often in the US, will be different for one driven by a capex supercycle.

Moreover, it would influence the broader macroeconomic landscape, potentially spurring higher inflationary impulses and sustained increases in bond yields at cyclical peaks. Our research suggests the structural thematic drivers outlined here are durable, substantial, and are likely to play out over many years. While the impact on productivity may take time to materialise, the changes are palpable and poised to exert a tangible influence.

———–

Notes:
[1] Ninety One, A new capex supercycle: driving powerful and transformative growth (2024)
[2] BloombergNEF, New Energy Outlook 2022 (2022)
[3] The Economist, The cost of the global arms race (2023)
[4] Intelligent Data Centres, Bulk Data Centers unveils plan for data centre expansion following unprecedented demand (2024)

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The compounding effects of higher rates and consumer prices ultimately will stifle the labour market and the economy, flipping the Fed.

“The Fed’s inflation and labour market concerns are overstated, and additional rate hikes won’t be necessary. Continued progress in controlling inflation prompted the Fed to once again hold interest rates steady at a 22-year high. [Last] Wednesday’s decision marked the Fed’s second consecutive pause — and the third overall — in its 19-month tightening campaign.

“The Fed paused despite robust economic growth, suggesting the government’s latest GDP data may reflect an anomaly. In its first estimate of third-quarter economic output, the Commerce Department reported the economy grew 4.9 per cent (annualised), the fastest pace in nearly two years. But the surge was largely due to consumers’ summer spending sprees and a jump in inventory investments, which likely aren’t sustainable.

“A still-strong labour market and persistent above-target inflation have largely accounted for the Fed’s hawkish tone. However, since raising short-term interest rates to a range of 5.25 per cent–5.5 per cent in July, policymakers have adopted a wait-and-see approach to additional increases. The compounding effects of higher rates and consumer prices ultimately will stifle the labour market and the economy, flipping the Fed.

“While the Fed left its future policy options open, the central bank’s tightening campaign is likely over. With Treasury yields soaring recently to 16-year highs, the bond market is doing its part, alongside the Fed, to tighten financial conditions. The yield on the ten-year Treasury note, a benchmark for mortgage and other consumer lending rates, recently topped five per cent for the first time since 2007.

“The labour market is a main factor guiding the Fed’s holding pattern. Resilient job creation and the relatively low unemployment rate continue to fuel inflation worries and complicate its interest rate outlook.

“Mounting conflicts between management and labour underscore an unfolding structural economic shift over the coming years. Growing demands for higher wages across industries will likely reshape the capital/ labour relationship to favour labour over capital.

“This pending dynamic also supports our long-term inflation view. With labour taking precedence, inflation likely will settle higher than the Fed’s current two per cent target. We expect this trend to emerge over the next three to five years and persist from there.”

By Charles Tan, co-chief investment officer – global fixed income

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US Federal Reserve

At yesterday’s meeting, the Federal Reserve (Fed) raised policy rates by 25 basis points, taking the benchmark rate up to 5.25%-5.5%, the highest level since 2001.

While the market had fully anticipated the decision to raise policy rates, Chair Powell gave nothing away regarding future decisions. He repeatedly reiterated the data dependency of the Fed’s next few meetings, simply noting that the FOMC is prepared to tighten policy further, if appropriate.

Receding inflation, strong economic data

In recent weeks, the market has celebrated a drop in headline inflation to 3% and continued evidence of a resilient labor market. While Powell acknowledged the downside inflation surprise, he slightly downplayed its importance, noting that it is just one month’s data and that markets should not read too much into it. He also pointed out that the process of getting inflation down to 2% has a long way to go, potentially taking until 2025, which signals that policy will likely need to remain restrictive for some time.

In addition, while Powell welcomed that the unemployment rate is unchanged from when the Fed started to raise rates last year, he also pointed out that they are looking for the labor demand/supply dynamics to come back into better balance. Historically, labor market conditions have tended to soften when monetary policy is tightened, and, as Powell pointed out, a weakening labor market remains the most likely outcome from here.

Future policy shrouded in mystery

While the market was very confident that the Fed would raise policy rates today, future policy decisions are considerably less certain. In fact, Chair Powell did not provide any hints at all! He pointed out that there are two jobs reports, two inflation reports, and a multitude of other economic data releases before the next FOMC meeting in September.

When questioned, Powell also pushed back at the idea that the Fed has potentially shifted to a pace of rate hikes at every other meeting. Instead, he repeated that the committee could either keep rates steady in September or raise rates at that meeting – truly insightful guidance!

Our own long-held forecast is for rates to peak at 5.25%-5.5% – their current level. Yet, given the confusing signals of waning inflation but a strong economy, keeping all options on the table seems sensible. Indeed, with commodity prices on the rise again and the labor market showing minimal signs of slowing, we can’t entirely rule out the possibility of an inflation resurgence lurking around the corner.

Soft landing hopes

Powell started 2023 as a lonely figure, believing a soft landing for the U.S. economy was possible. In the past month, however, many Wall Street analysts have capitulated to his view and, as Powell revealed today, Fed staff forecasts have also shifted from recession to soft landing. In our view, and despite those shifts, the “long and variable” lags of monetary policy must surely mean that recession risk is still alive and elevated.

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Michael Grady

Global economic activity has proved stronger than seemed likely at the start of the year, given the scale of supply-side shocks that had fuelled inflation and eaten into disposable incomes over the previous 12 months. Several indicators suggest growth accelerated in the first half of 2023 as a drop in energy prices lowered headline inflation.

However, Aviva Investors, the asset manager of Aviva plc, believes that the current economic cycle is likely nearing its end. Even though energy prices have fallen sharply, leading central banks have not yet won their battle to control underlying inflation. That suggests interest rates will continue to rise.

This ‘late-cycle’ environment could persist for a while longer, should the global economy continue to defy expectations with its unexpected resilience. All the same, major developed economies still look set for below-trend growth in the second half as the impact on household finances of higher rates saps spending.

Central banks are striving to tighten monetary policy sufficiently to weaken labour markets, deliver softer wage growth and ultimately lower core inflation without causing an economic downturn. However, it is important to recognise such periods usually end with too much policy tightening and recession.

Michael Grady, head of investment strategy and chief economist at Aviva Investors, said: “Returning inflation to central banks’ targets in a way that minimises economic damage is proving challenging, although some progress is being made. It still remains to be seen how much pain will be required to get inflation back to targets of around two per cent. But policymakers are mandated to deliver low inflation and they need to stay the course, even if that means parts of the economy suffer.

“Most equity markets have risen by between ten and twenty per cent this year as investors have sensed that interest rates were close to peaking, and that global economic growth was holding up better than expected. Company earnings, which have tended to surpass expectations, have also helped demand. In the short-term, we are optimistic on equity markets’ prospects, particularly in Europe as earnings are expected to hold up better and valuations are more attractive. But we are more cautious further ahead given the risk of recessions.

“The outlook for government bond markets looks more favourable than three months ago given the extent to which further interest rate increases have been priced in. The obvious, and increasing, danger that higher rates eventually tip economies into recession means we are now overweight the asset class. We see potential opportunities in the US since US interest rates are probably closer to peaking, while UK gilts are in a similar position given a further aggressive hike in interest rates is priced in. Emerging-market debt, denominated in local currencies, may also offer opportunities given the likelihood some central banks will start cutting rates in the second half.

“We are neutral on corporate bonds. The extra yield relative to government debt looks fair given healthy corporate profits and low default rates. But expectations a recession will be averted has led investors to bid up the price of corporate debt.

“We remain overweight cash. Although real rates of interest are negative, there is a prospect of earning a positive rate of return in the not-too-distant future as inflation falls and central banks continue to raise rates.”

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Advisers need to have a good understanding of the effects of recession on Australian businesses, households and asset markets.

The Reserve Bank of Australia’s (RBA) quick increase in interest rates in an attempt to manage inflation has raised fears that Australia could fall into a recession within the next year or two. What effect would a recession have on Australian businesses, households, and asset markets if this occurred? What previous recessions has Australia experienced, and why did those recessions occur? This article will look to provide answers to these questions, as well as some indication, based on current statistics, of whether a recession is imminent.

What is a recession?

A recession is when economic output falls over an extended time period and the unemployment rate rises significantly. The most common definition is two quarters of negative growth in real Growth Domestic Product (GDP); the main measure of economic output. In most cases (though not always) recessions occur at the trough of the business cycle.

To understand why recessions occur, we must first understand the four major business cycle phases: expansion (typically the longest period), peak, contraction, and trough. The business cycle revolves around the economy’s potential growth line, which is the amount of output growth that the economy can accomplish while fully utilising its capital and human resources without putting upward pressure on prices. Population growth plus productivity is one rule of thumb for assessing the economy’s potential growth rate.

In the expansion phase demand for goods and services are rising, businesses are using more resources to meet growing demand, and employment, wages and prices are rising. The expansion phase ends in the peak phase, with output and prices running above what is sustainable long term. The peak phase turns to contraction when household and business demand weakens, businesses start reducing their workforce and wage and price growth slows. . Trough is the final phase, which occurs as a result of contraction. This phase can lead to recession depending on the intensity of the downturn.

Policymakers invariably want to avoid recession if they can.  The loss of business activity and the rise in unemployment in a recession can have lasting, damaging effects on the potential of the economy to grow, not to mention the broader financial system and social cohesion. However, policymakers need to know when recession is occurring to be able to do anything about it. Relying on GDP data to determine when the economy is in recession provides a warning well after recession has started. By looking at the characteristics of the contraction and trough phases of the business cycle, it is possible to build a definition of recession beyond back-to-back quarters of negative GDP growth.

GDP data encompasses the whole economy, including all of its various spending, income, and production functions.  Because the substantial information contained in GDP data takes time to collect and publish, GDP data in Australia is issued more than two months after the quarter to which it corresponds. The next GDP report for Q2 2023 will be released in early September, two-thirds of the way through Q3 2023. If Australia has back-to-back negative quarterly GDP growth in Q2 and Q3 2023, the first indication of a recession based on back-to-back negative GDP would be in early September and would require confirmation with a negative Q3 GDP announcement not due until December.

Furthermore, in order to release GDP reports in a reasonable time frame, the Bureau of Statistics relies on a combination of hard data plus surveys and informed assumptions to fill in information that will not be accessible in hard form until many months after the GDP release. When additional firm information becomes available, quarterly GDP reports are always revised.  A negative GDP growth quarter might be corrected to a positive quarter (or a positive quarter to a negative one) three, six, or even nine months after the original report was released.

The ‘two consecutive negative GDP growth quarters’ definition of recession is only really useful for looking at recessions that originated some time ago. When considering the possibility of a current or future recession, what happens during the contraction and trough business cycle phases can provide some hints. Signs of large contraction in household and business demand – falling monthly retail sales; stalling home sales and prices; evidence of financial stress; businesses investing less; unintended build-up in inventories; increasing business failures; and slowing employment growth and rising unemployment – will often show up in monthly data and surveys several months prior to the publication of quarterly GDP reports.

Recessions are always accompanied by significant increases in the unemployment rate, with some experts interpreting an increase in the unemployment rate of a percentage point or more from its low point in the cycle as a strong indicator that the economy has entered a recession. The unemployment rate change method of determining whether we are in a recession has advantages over waiting for GDP data because it is published sooner after the period to which it relates (within a fortnight of the month covered), and it is less subject to revision than GDP data.

The disadvantage of using the unemployment rate is that it is a lagging indicator of changing economic activity. Businesses take time to adjust down their employment needs after demand growth weakens. The unemployment rate rises several months after growth in the economy has started to slow and could take a year or more to rise to a level warning of recession.

While it is difficult to assess at present whether the economy is entering recession, or just suffering a period of weaker but still positive economic growth, it is clear cut when the Australian economy has suffered recession in the past using the two-quarters of negative GDP growth definition.

Past Australian recessions

Over the past 50 years Australia has suffered four clear periods of recession (Figure 1). There have been other isolated one quarter negative GDP readings over the same period that were recession-like; exhibiting slowing demand and rising unemployment, but these have been judged as periods of weak growth rather than recessions.

The first recession of the past 50 years was in 1975 (Q3 real GDP -1.1% q-o-q, Q4 -1.5% q-o-q), the second a double-dip recession between late 1981 and early 1983 (Q4’81 -0.4% q-o-q, Q1’82 -0.8% q-o-q, then brief recovery in Q2’82, +0.9% q-o-q ahead of four consecutive quarterly falls from Q3’82 to Q2’83 of -0.7%; -1.6%; -1.0%; and-0.2%), the third in 1991 (Q1 -1.3% q-o-q, Q2 -0.2% q-o-q) and then a 29-year economic expansion until the fourth recession in 2020 (Q1, -0.2% q-o-q, Q2 -6.7% q-o-q) which was brought about by the impact of the COVID-19 pandemic.

The 1975 recession occurred following the global oil price shock, which saw oil prices quadruple, causing several of Australia’s key export trading partners to enter recession while also driving up local business costs, prices, and wages. Foreign demand for Australian exports declined, which was exacerbated by a fixed Australian dollar exchange rate that had previously been established excessively high and had been revalued upwards by official dictate to help curtail high inflation, which eventually peaked at 18%. Due to declining demand and high costs, Australian businesses began to lay off workers. The unemployment rate, which had fallen below 3% at times in the late 1960s and early 1970s, rose to 5.5% during the recession and declined only modestly during the subsequent economic recovery.

After the 1975 recession, inflation was slow to subside, owing to persistently high oil prices, as well as excessive money supply growth and lax fiscal policy. Inflation had been too high for too long by the early 1980s, and central banks around the world were tightening policy settings. In Australia, the RBA’s policy tightening coincided with the onset of recession in several of the country’s key trading partners, as well as a prolonged and devastating drought that reduced agricultural output.

The double-dip recession that occurred between 1981 and 1983 saw the unemployment rise from 5.4% in July 1981 to a peak of 10.5% in July 1983. It would take twenty-one years before the unemployment rate would return as low as 5.4%. The early 1980s recession caused considerable hardship for Australian households and businesses and left a lasting physical reminder in Australia’s biggest cities, where many commercial building projects were abandoned, leaving a legacy of holes in the ground in city centres that would take years to resume.

The end of the drought in 1983, along with looser policy conditions aimed at assisting the economy’s recovery from recession, triggered a period of excessive demand in the mid-1980s, driving up asset prices and inflation. The October 1987 stock market fall temporarily dampened demand, but the policy steps implemented in response, such as cutting interest rates and increasing liquidity in the financial system, quickly sparked a return of excessive demand, housing market speculation, and rising inflation. To deal with excessive inflation, the RBA promptly and severely raised the cash rate to nearly 18.0% at one point, recognising that a recession – however undesirable – would be required to combat high inflation. Treasurer Keating famously spoke of this period as ‘the recession that Australia had to have’.

Many of Australia’s major trading partners were also using high interest rates to deal with high inflation and were entering recession as a result. In November and December 1989 Australia’s unemployment rate was at its low point of 5.8%. It would peak at 11.2% three years later in December 1992 (some 18 months after the back-to-back negative quarterly GDP readings in 1991). The unemployment rate sat above 10% for 32 months in the early 1990s and youth unemployment was especially high, creating social unrest. Financial institutions suffered a sharp rise in non-performing loans.

The early 1990s recession broke the back of high inflation and ushered in a long period of disinflation and falling interest rates. There were periods through the 1990s and 2000s where excessive demand and briefly higher inflation would push the RBA to hike official interest rates, but peak interest rates were always below the previous peak.

The next threat of recession came not from an RBA policy tightening cycle, but the global financial crisis in 2008 and 2009. In many countries, including the United States, the severe stresses in the banking and financial system prompted a loss of economic output and rising unemployment. Many countries experienced recession. Australia suffered growth slowdown and some lift in unemployment (peaking at 6%) but trade links to the strong Chinese economy, a sound banking system by international comparison, and a sharp increase in government spending combined with easier monetary conditions worked to avoid recession.

Australia’s most recent recession in 2020 occurred because of the abrupt reduction in economic output caused by restrictions put in place to help contain the COVID-19 pandemic. Rapid development and rollout of vaccines prompted the winding back of restrictions through 2021 and 2022, one factor helping to promote a sharp recovery. During the short but deep recession, the unemployment rate briefly lifted above 7%. However, the Government and the RBA were fearful that the recession would be deeper and longer than occurred with potential for the unemployment rate to lift above 10%. The Government boosted spending by the equivalent of 15% of GDP, mostly in income support payments for households and businesses, while the RBA reduced the cash rate to 0.10% and at one stage capped the 3-year bond yield at 0.10%. Historically large fiscal and monetary stimulus reduced the depth of the recession, catapulted the economy to strong growth (+3.8% q-o-q in Q3 2020 and +3.4% q-o-q in Q4) and saw the unemployment rate fall rapidly below 4%, mirroring lows last experienced half a century before.

The demand recovery has proven to be too strong, stretching supply of goods and services, hampered by various events such as COVID and the Ukraine War, and causing significant inflation in Australia, peaking at 7.8% year on year in Q4 2022. Since May 2022, the RBA has been raising its cash rate in order to control inflation, and those higher borrowing interest rates are raising the question of whether Australia will soon experience another recession.

Recession ahead?

Under pressure from rising interest rates, Australian GDP growth has moderated to only 0.2% q-o-q in Q1 2023. It is possible that Australia could experience back-to-back negative GDP growth quarters later in 2023 or in 2024, but there are factors at play that still mitigate against a recession.

The first factor is the return of strong immigration, resulting in population growth lifting to near 2% y-o-y over the next year or two. Population growth is keeping housing demand strong and working to counter the housing-demand-reducing impact of higher interest rates. Home buying activity and prices have invariably been weak in earlier Australian recessions (during the 2020 recession house prices fell the most in 40 years), but home buying and prices are currently rising.

A second factor is the current strength of the labour market combined with rising wages. Labour income is lifting at near double-digit growth pace at present. The strength of labour income is a problem for the RBA trying to contain inflation, but it is providing support for spending even as household budgets are strained by the high cost-of-living and mortgage payments.

A final factor is that the Australian share market is showing few signs of being concerned by a potential sharp reduction in earnings that would accompany a recession. Some of the worst annual return falls from the share market in the past have occurred heading into recession (Figure 2). Also, some of the best returns occur coming out of recession.

Going back to the 1975 recession, the Australian All Ordinaries Accumulation index fell 23.3% in 1973 and fell another 26.9% in 1974 before lifting 62.9% in 1975. The doble-dip recession in the early 1980s saw the index fall 12.9% in 1981 and another 13.9% in 1982 before lifting 66.8% in 1983. The first-half 1991 recession saw the index down by 17.5% in 1990 before lifting 34.2% in 1991. The global financial crisis non-recession for Australia saw the index down 40.4% in 2008 followed by a 39.6% rise in 2009. Breaking the pattern, the COVID recession in 2020 and quick rebound saw the share market rise only 3.6% in 2020 before pushing up 17.7% in 2021.

Now, in mid-2023 the share market has been pushing higher so far this year and is up over 10% over the past year. Barring a sudden and large fall, investors in the Australian share market are saying no recession immediately ahead.

Conclusion

Except for a technical recession caused by the pandemic in 2020, Australia has not had a true recession in over 30 years. These periods of negative GDP typically have far-reaching and terrible consequences for ordinary Australians, so it is understandable that the prospect of another one has economists, policymakers, and individuals on edge. However, it is critical to consider things holistically and not behave rashly based on what is frequently dramatised information and hyperbole. A recession is not always difficult to predict if you look in the proper places, and being able to make this assessment will be a vital tool for investors in ensuring they are as prepared as possible if one were to eventuate.

The post The impact of recession appeared first on AdviserVoice.

The RBA has now hiked rates for the sixth consecutive month. With lead indicators showing signs of inflation coming off the boil and European banks starting to see stress, cracks are forming in the credit and equity markets. Have central banks tightened too aggressively risking a recession?

Chris and Darren debate this and more in episode 32 of The Rate Debate.

Listen to the full podcast series:

• Podcast 1: The Rate Debate
• Podcast 2: Down, but not out
• Podcast 3: The Rate Debate Special Edition
• Podcast 4: The RBA’s buying spree
• Podcast 5: Credit crunch or crisis?
• Podcast 6: Out of step
• Podcast 7: Sting in the tale
• Podcast 8: Is Australia ready for more monetary stimulus?
• Podcast 9: Talk is cheap
• Podcast 10: Has the RBA gone too far by not going far enough?
• Podcast 11: The RBA finally unleashes the bazooka
• Podcast 12: Could house prices top 20% growth in 2021?
• Podcast 13: Could housing be the good news story for 2021?
• Podcast 14: What’s driving interest rates higher?
• Podcast 15: Is the free ride over?
• Podcast 16: Are we heading for a debt trap?
• Podcast 17: Could an increase in interest rates derail the housing market?
• Podcast 18: The market versus the RBA – is a hike before 2024 likely?
• Podcast 19: RBA sees Delta impact as a temporary phenomenon
• Podcast 20: Is the RBA banking on a rebound?
• Podcast 20: Is the RBA banking on a rebound?
• Podcast 21: Is the heat coming off the housing market?
• Podcast 22: Bond market loses confidence in the RBA’s forward guidance
• Podcast 23: The reopening trade to determine economic growth in 2022
• Podcast 24: Podcast 24: RBA ends QE and pushes back on rate hike
• Podcast 25:RBA ends QE and pushes back on rate hike
• Podcast 26: How high and how fast can rates go?
• Podcast 27: Is the RBA risking a recession to solve inflation?
• Podcast 28: Has the RBA hit panic mode?
• Podcast 29: Leaders indicators warn of global recession
• Podcast 30: Can the RBA thread the needle?
• Podcast 31: No sign of pause from the RBA as the risk of mortgage stress intensifies
• Podcast 32: Podcast 32: Are central banks at risk of blowing up markets?

The post Podcast 32: Are central banks at risk of blowing up markets? appeared first on AdviserVoice.

Australia’s central bank has now raised interest rates five months in a row. It’s the most aggressive tightening cycle since 1994. With more hikes expected, and house prices in Sydney and Melbourne on the slide, cracks are starting to appear.

Chris and Darren discuss how further rate hikes will impact the housing market, unemployment rate, and the wider economy in episode 31 of The Rate Debate.

Darren and Chris discuss this and more in episode 31 of The Rate Debate.

Listen to the full podcast series:

• Podcast 1: The Rate Debate
• Podcast 2: Down, but not out
• Podcast 3: The Rate Debate Special Edition
• Podcast 4: The RBA’s buying spree
• Podcast 5: Credit crunch or crisis?
• Podcast 6: Out of step
• Podcast 7: Sting in the tale
• Podcast 8: Is Australia ready for more monetary stimulus?
• Podcast 9: Talk is cheap
• Podcast 10: Has the RBA gone too far by not going far enough?
• Podcast 11: The RBA finally unleashes the bazooka
• Podcast 12: Could house prices top 20% growth in 2021?
• Podcast 13: Could housing be the good news story for 2021?
• Podcast 14: What’s driving interest rates higher?
• Podcast 15: Is the free ride over?
• Podcast 16: Are we heading for a debt trap?
• Podcast 17: Could an increase in interest rates derail the housing market?
• Podcast 18: The market versus the RBA – is a hike before 2024 likely?
• Podcast 19: RBA sees Delta impact as a temporary phenomenon
• Podcast 20: Is the RBA banking on a rebound?
• Podcast 20: Is the RBA banking on a rebound?
• Podcast 21: Is the heat coming off the housing market?
• Podcast 22: Bond market loses confidence in the RBA’s forward guidance
• Podcast 23: The reopening trade to determine economic growth in 2022
• Podcast 24: Podcast 24: RBA ends QE and pushes back on rate hike
• Podcast 25:RBA ends QE and pushes back on rate hike
• Podcast 26: How high and how fast can rates go?
• Podcast 27: Is the RBA risking a recession to solve inflation?
• Podcast 28: Has the RBA hit panic mode?
• Podcast 29: Leaders indicators warn of global recession
• Podcast 30: Can the RBA thread the needle?
• Podcast 31: No sign of pause from the RBA as the risk of mortgage stress intensifies

The post Podcast 31: No sign of pause from the RBA as the risk of mortgage stress intensifies appeared first on AdviserVoice.

After hiking for the fourth consecutive month, the RBA’s tone has shifted to suggest a pause at the September meeting is possible, reflecting in part the troubling signals emanating from markets as the US teeters on the brink of recession and conditions continue to cool across the globe.

As lead indicators continue to flash red – consumer confidence remains at alarming levels and housing is rolling over – can Australia’s central bank successfully thread the needle and avoid an outright stalling of the Australian economy?

Darren and Chris discuss this and more in episode 30 of The Rate Debate.

Listen to the full podcast series:

• Podcast 1: The Rate Debate
• Podcast 2: Down, but not out
• Podcast 3: The Rate Debate Special Edition
• Podcast 4: The RBA’s buying spree
• Podcast 5: Credit crunch or crisis?
• Podcast 6: Out of step
• Podcast 7: Sting in the tale
• Podcast 8: Is Australia ready for more monetary stimulus?
• Podcast 9: Talk is cheap
• Podcast 10: Has the RBA gone too far by not going far enough?
• Podcast 11: The RBA finally unleashes the bazooka
• Podcast 12: Could house prices top 20% growth in 2021?
• Podcast 13: Could housing be the good news story for 2021?
• Podcast 14: What’s driving interest rates higher?
• Podcast 15: Is the free ride over?
• Podcast 16: Are we heading for a debt trap?
• Podcast 17: Could an increase in interest rates derail the housing market?
• Podcast 18: The market versus the RBA – is a hike before 2024 likely?
• Podcast 19: RBA sees Delta impact as a temporary phenomenon
• Podcast 20: Is the RBA banking on a rebound?
• Podcast 20: Is the RBA banking on a rebound?
• Podcast 21: Is the heat coming off the housing market?
• Podcast 22: Bond market loses confidence in the RBA’s forward guidance
• Podcast 23: The reopening trade to determine economic growth in 2022
• Podcast 24: Podcast 24: RBA ends QE and pushes back on rate hike
• Podcast 25:RBA ends QE and pushes back on rate hike
• Podcast 26: How high and how fast can rates go?
• Podcast 27: Is the RBA risking a recession to solve inflation?
• Podcast 28: Has the RBA hit panic mode?
• Podcast 29: Podcast 29: Leaders indicators warn of global recession

The post Podcast 30: Can the RBA thread the needle? appeared first on AdviserVoice.