More economic pain as rate rise looms, warn top fund managers

Millie Muroi is a business reporter at The Sydney Morning Herald, covering banks, financial services and markets.

Leading fund managers say Australia will avoid a recession, but the worst is yet to come as consumers face a tough Christmas period and slowdown in spending early in the new year.

With the prospect of another Reserve Bank interest rate rise firmly on the cards following the latest inflation numbers, some of Australia’s top fund managers on Thursday shared their views on the likelihood of a soft landing at an event held by philanthropic investment company Future Generation and moderated by this masthead.

Wilson Asset Management chairman Geoff Wilson said while tax cuts and immigration over the next year would put Australia’s economy in a better position than many countries, the next few months would be challenging.

“We’ve had that big savings cushion from all the money pumped in during COVID, but that runs out, I think, in the first part of next year,” he said. “If interest rates keep going up, and the way the long bonds are backed up, it’ll be tricky. Christmas and the early part of next year, from the economy side, is going to be tough.”

Wilson also said geopolitical uncertainty would be a factor shaping markets and the economy. “Without doubt, I think it’ll get worse geopolitically before it gets better,” he said.

Tribeca Investment Partners portfolio manager Jun Bei Liu said recession was not on the cards for Australia, but there were already clear signs of a slowdown in consumer spending.

“If we do have another rate hike, I think Christmas is going to be pretty tough,” she said, adding that economic activity would probably bottom out between March and June next year as spending continues to slow and unemployment ticks up.

But beyond that time horizon, Liu said demand driven by immigration and China would bolster the Australian economy.

“We have a whole wave of immigration coming through next year, and when people land in Australia, they need a place to live, they buy TVs, electronics, everything, so that will generate activity,” she said. “At the same time, iron ore is holding up OK, so our terms of trade is good, and hopefully, by then, China’s activity will be picking up more.”

Speaking about the energy transition, Paradice Investment Management founder and stock picker David Paradice said Australia had a fundamental point of difference from other economies in its abundance of critical minerals.

“Australia is, as we know, a commodity-based economy, but we also have critical minerals,” he said, noting big countries including the US and China were pivoting their economies towards the energy transition.

“My guys have been positioning themselves for it for a while,” he said, with several fund managers holding a “reasonably good position” in uranium-related stocks.

Wilson said the US and European governments had spent heavily on the energy transition, and that it was at partly up to the Australian government to bolster the country in the green arms race. “Australia has got all the attributes to be the lowest cost producer,” he said.

The Age and The Sydney Morning Herald are media partners of the Future Generation Summit.