It’s the last day on air for 2023 for my 2GB colleague Ben Fordham and he asked me to share my crystal ball with our listening audience to see what I expect for finance and business next year.
He's also asked me to think of some advice for young Aussies who are looking to save/get ahead in the new year.
So, here goes.
On the big issue, interest rate rises, I think they’re over!
There’s an economic case building that enough has been done by the RBA. This week, economic growth was weaker than expected for the September quarter, at 0.2% rather than half-a-percent predicted by economists. As CBA economist Gareth Aird noted: “Consumption has barely grown for four successive quarters, the worst stretch since the global financial crisis, despite households increasingly drawing on savings amassed during pandemic lockdowns”.
After data this week, he also revealed: “Money markets reacted by paring back the chance of a further hike, slashing the probability of another RBA hike from 44% to just 10%. And futures (markets) now imply the chance of a rate cut as early as August at 51%, compared with zero on Tuesday.”
Given the above, I think inflation will continue to fall towards the 2-3% band.
My third prediction is that there’ll be rate cuts. By mid-year, the RBA will be close to the first one. I wouldn’t expect more than two 0.25% cuts but, if the economy is slowing faster than expected, we could see three drops. The OECD thinks our cash rate will be down from the current 4.35% to 3.6% by December 2025 but these guys are always conservative but at least they see rates falling.
This last revelation ties in with my third prediction that our economy will slow but we will avoid a recession. In fact, if the September slowdown of economic growth shows up again in December, we could see rate cuts earlier than I’ve predicted.
Unemployment is now at 3.7%. Next year it could go as high as 4.5%. The ANZ/Indeed survey on Monday showed job ads fell 4.6% in November from October, the biggest drop since August 2021. Ads were down 16.8% from a year before and while they remain high, this is a sign of things to come for 2024.
On the dollar, I expect it to keep rising in 2024. I wouldn’t be surprised to see it in the 70 US cents band. Rate cuts in the US and here will determine it but history has shown that when the Yanks start cutting rates, the focus goes on to the massive size of their budget deficit, and the greenback sinks, and the Oz dollar rises. We’d be helped by a bigger-than-expected bounce-back of the Chinese economy.
To the stock market and an end to rate rises should be a plus for share prices. Year-to-date, our market is up 3.27%, but for the past 12 months we’ve been flat. And over the past two years, the S&P/ASX 200 is only up around 4%. We are due for a big year for stocks, given history says stock markets average a return of 10% per annum, when you add in dividends. I wouldn’t be surprised to see a 10% gain for the market. If you add in dividends and franking credits, a 15% win from investing in an ETF for the overall market makes sense.
The May Budget will see Dr Jim Chalmers give a lot away to help a slowing economy and try to turnaround the falling popularity of his leader and his party. Yesterday I reported that Judo Bank’s chief economist, Warren Hogan looked at the recent National Accounts and said: “The Treasury is doing more damage to household disposable incomes than the RBA.” That would’ve hurt.
Business-wise, industry super funds will keep flexing their muscle and could stop some big end of town ideas. Recently, Australian Super voted down a takeover of Origin Energy by Canada’s Brookfield Asset Management and EIG Partners. And underperforming company CEOs will be roasted, while overpaid ones will be in focus following the Alan Joyce/Qantas debacle.
On what should Australians (young or old) do to be better at making money? Here’s a few steps:
As I always say: “Anything worth doing is worth doing for money!”