Australia's economy continued to defy expectations in 2023 despite hopes that we might begin to see signs of a return to normalcy.
While some analysts had predicted that the Reserve Bank would stop raising interest rates over the year, inflation remained challenging, leading to 5 rate hikes instead. However, there was good news on the financial front, as superannuation funds recovered from 2022 losses, with SuperRatings forecasting that the median balanced option would see returns of 9.6% in 2023.
The big picture
Global economic forecasts for 2023 were overcome by several unexpected events during the year. While many economists predicted a recession in the United States (US) and Europe and a rebound in China, the year ended differently with no recession in the US, Europe navigating their way through but doing better than expected, and China still overcoming a few challenges.
October brought concerns about a wider Middle East conflict, with the International Monetary Fund saying that an escalation of the conflict could influence tourism, trade, and investment.
Inflation and interest rates
In Australia, economic growth reduced when comparing 2022’s results but still delivered a better return than forecast, with the economy growing by 2.1%. However, an unexpected increase in the population is influencing housing prices, keeping inflation higher. It was the 8th quarter in a row of economic growth.
Although inflation remains high, many believe we have seen the end of interest rate rises for 2024. The latest figures show that the inflation rate dropped from 4.9% in October 2023 to 4.3% in November 2023.
Share markets
Global share markets ended 2023 on a positive note. In the US, news from the Federal Reserve of an end to rate hikes saw stocks and bonds soar in the year's final weeks. During the year, the Dow Jones index increased by 13.7% and the Nasdaq by 43.4%. There was mixed news in Asian markets, with a jump of 28.2% on the Nikkei 225, but China’s Shanghai Compositive fell 3.7%.
Australia’s share market may not have experienced the heady double-digit returns of some global markets, but it ended the year with a gain of almost 8%, marking its best performance since 2021.
Commodities
Despite big falls from the peaks of 2022, commodity prices remain high across the board.
Iron ore, Australia’s biggest export, rose more than 21% as the Chinese government continues to create strong demand by stimulating property and infrastructure development.
Oil prices increased throughout the year but stabilised by December 2023. However, according to the World Bank, conflicts in the Middle East and Ukraine could increase oil prices, pushing global commodity markets into uncharted territory. As Australia faces high inflation figures and the US dollar continues to gain strength, the Australian dollar has come under pressure, ending the year where it began after recovering from a slide in the 2nd half of the year.
Property market
Although rising interest rates typically cause property prices to fall, some cities saw a surprising reversal by the end of the year, defying earlier predictions.
CoreLogic’s national Home Value Index rose 8.1% in 2023, up from the 4.9% drop in 2022, with a variable performance across the country. House prices rose more than 1% every month on average in Perth, Adelaide, and Brisbane in the year's second half. While Melbourne values dropped in November 2023 and December 2023, Sydney and Canberra prices moved slightly, and Hobart and Darwin prices decreased somewhat.
Looking ahead
Natural disasters can be a factor in Australia, with things such as bushfires in the west and floods and storms in the eastern states, which can affect the economy both in Australia and overseas.
Worldwide, China’s economy and the outcome of the US presidential election may cause changes across the globe. Meanwhile, markets will be watching the ongoing war conflicts overseas, which have the potential to create broader economic challenges.
Next steps
Whatever the year ahead brings, we are here to help you navigate any challenges that may arise.
Speak with your local Nexia Australia Adviser today to discuss how we can help you connect with your true potential.
