The attached note takes a look at the risk of recession in Australia. The key points are as follows:
The combination of cost-of-living pressures, sharp interest rate hikes and a global downturn point to a sharp slowing in the Australian economy next year, with consumer confidence at recessionary levels.
However, there are several reasons why Australia should be able to avoid a recession: the business investment outlook is solid; there is a large pipeline of homebuilding work; high energy prices boost national income; the $A will fall if the global economy gets too weak; immigration is rebounding; inflation may be less of a problem in Australia; and the RBA has moved into the more cautious lane on rate hikes.
We would put the risk of recession in Australia at around 40% which is high, but we should be able to avoid it with a 60% probability. The risk is higher in other major countries.
The surge in inflation should start to reverse next year.
However, five structural trends suggest higher medium term inflation pressures than pre-pandemic. These are: a move away from economic rationalist policies; the reversal of globalisation; rising defence spending; climate change & decarbonisation; & a fall in workers versus consumers.
This will likely constrain medium term investment returns compared to the pre pandemic years.
This edition looks at the outlook for home prices in Australia. The key points are as follows:
Australian national average home prices fell another 1% in November and are now down by 6.9% from their high, having seen their steepest fall in the last forty years.
Rising mortgage rates are the main driver of the slump and there is likely more to go. Since April, a buyer on average full-time earnings with a 20% deposit has seen a 25% decline in their home buying power.
While the time taken to save a 20% deposit to buy a home in Australia has fallen, it’s still double mid-1990s levels.
We continue to expect a 15-20% top to bottom fall in home prices out to the September quarter next year, as the full impact of rate hikes flows through and as economic conditions slow sharply into next year resulting in rising unemployment, followed by a gradual recovery.
We love to hear from you, so please feel free to contact us with any questions about our articles in this newsletter on our email info@ldmwealth.com.au
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