Five key themes from 2023
Despite lots of angst at the start of the year, 2023 turned out far better than feared. Key big picture themes of relevance for investors were:
Stronger than feared growth. Despite fears that recession was inevitable, on the back of multiple rate hikes and a rough reopening in China, it’s been avoided so far, including in Australia, helped by saving buffers, reopening boosts particularly to eating out & travel and some labour hoarding. Economic growth in 2023 looks to have been around 3% globally and around 1.9% in Australia which was helped by a population surge partly offsetting severe mortgage pain for some.
Disinflation. Inflation across major countries has fallen sharply from peaks of 8 to 11% last year to around 2 to 5%. Australia lagged on the way up and is doing the same on the way down, but it’s falling too.
Peak interest rates. It took longer to get there and there was a “high for longer” scare on rates but most major central bank policy rates look to have peaked and this probably includes the RBA’s cash rate.
Geopolitical threats proved not to be as worrying as feared – the war in Ukraine remained contained, conflict in Israel flared again but so far has not spread to key oil producers (oil prices actually fell a bit) & the Cold War with China thawed a bit. A lack of major elections helped.
Artificial intelligence hit the big time after the launch of Chat GPT with hopes it will boost productivity. The immediate beneficiaries were key (mostly US) tech stocks – which helped them reverse the 2022 slump.
The return of Goldilocks…
There were lots of bumps along the way – notably in the seasonally weak August to October period on the back of the sticky inflation/high for longer rates scare. But for diversified investors 2023 turned out okay with okay growth & falling inflation.
The next table shows investment returns…