2023: A Year of Economic Turbulence — and Resilience
5 min
OPINION
As 2023 draws to a close, we are presented with an opportune moment to reflect on a year marked by economic resilience and a transformation of our economic environment that has not been seen for decades. We continue to push through the complex circumstances presented by the post-COVID recovery, remaining inflation, and the aggressive array of official interest rate increases during 2023.
Just as we see signs that the fight against global inflation may have finally resolved during an astounding year of economic resilience, there remains the threat of a new set of black swan events lurking in the shadows. We could very well see both global and local economic indicators deteriorating well into 2024. In addition, there remains the major threat of a disruption to global trade due to the Houthi militants’ interference in the Suez Canal.
Undoubtedly, the pace of the economic slowdown hastened in the September quarter with unemployment rising, and GDP only barely increasing by 0.2%, falling short of the anticipated 0.5%. If adjusted for immigration, Australia is officially in a per capita recession.
Australia’s record net migration of 2.5% for the 2023 calendar year undoubtedly enabled our economy to remain resilient, while also presenting itself as a potential medium to long-term nuisance. Migration helps ease some of the pressure we are currently experiencing in our tight labour market and leads to higher aggregate demand. However, it also places additional inflationary pressure on housing and rent.
Monetary Policy Outlook
The RBA’s approach to monetary policy has been a topic of much debate, with a very direct transmission channel to mortgage holders in Australia, where there is also higher household leverage. Higher rates end up being passed onto renters and mortgage holders, who comprise roughly 70% of the market. This illustrates the blunt aspect of monetary policy and how it disproportionately impacts certain groups, such as young, lower-income mortgagors trying to support their family. On the other hand, self-funded retirees are a group that is generally well-placed in a rising interest rate environment.
The RBA’s cautious stance, including the decision to keep the cash rate on hold in December, was a response to the evolving economic situation and clear signs of the economy cooling, including slower GDP growth, lower inflation, and higher unemployment.
Many economists now predict that in 2024, during the 4th quarter, interest rates will begin to be reduced. The question is what the neutral cash rate is estimated to be – somewhere between 2.75% and 3.75% – where the rate neither increases nor decreases inflationary pressure.
Labour Market and Unemployment
A significant aspect of 2023 was the labour market beginning to loosen as consumer spending softened. The unemployment rate in Australia rose to 3.9% in November, indicating a clear upward trend. This was coupled with an increased underemployment trend which is expected to continue throughout 2024.
While the RBA’s primary mandate is to manage inflation, it also has a key role in achieving full employment. There is a concept relating to a neutral unemployment rate, where any further increase has an inflationary impact on the economy. This is referred to as the Non-Accelerating Inflation Rate of Unemployment (NAIRU) and is often referred to in the RBA’s statements. They believe that Australia’s natural rate of unemployment should be 4.5%. Moving closer to this rate allows us to see improvements in productivity whilst not incurring significant inflationary pressure or economic weakening. Indeed, such low unemployment during the year has made our economy extraordinarily resilient in the face of adversity.
As the unemployment rate gets closer to the target of 4.5%, it often impels the RBA to cut the official cash rate.
Household and Household Income
The increase in average mortgage rates and the strain on household budgets were notable over the past year. Real household disposable income declined significantly. Interest paid on housing debt and income tax payable increased substantially, further stressing household finances. Despite these adversities, we have witnessed an extraordinary recovery in property prices during the year, which has been rather counterintuitive from a pure economic standpoint.
The rationale behind this can be explained by the decade-long chronic shortage of housing supply, combined with high net migration. This reinforces the unrelenting nature of housing demand in Australia. It is also a testament to how families will continue to make sacrifices to enable them to live in their property and avoid renting. As the housing crisis worsens, there is a realisation that residential property is not merely an asset class for investment, but also an essential piece of infrastructure for which all levels of government are responsible to deliver sufficient supply. However, we must remember: there is no immediate or quick fix.
Private Credit’s Role
Private credit, especially secured lending, becomes even more crucial in this uncertain and tumultuous environment. Traditional banks, facing an uncertain economic climate, become more cautious, paving the way for firms like Msquared Capital to provide essential credit to SMEs.
For us at Msquared Capital, our daily interactions with borrowers ensures we are always there to witness and respond to ever-changing conditions. We can see dislocations within the lending market and that is what enables us to find the best risk-rated returns for our investors.
Secured private credit is in high demand as investors navigate uncertain times and move away from riskier assets in which the downside risk is the absolute loss of capital following from heightened market volatility. Investors are seeking a safe haven that provides steady and reliable income, all while being secured by real assets – that is, property – with asset preservation qualities.
Many investors are only now beginning to discover private credit and its benefits. At Msquared Capital we see that there is still a lack of understanding and awareness on the difference between private credit providers and their offerings. Another crucial point to remember is that not all debt, nor fund managers, are the same or of equal quality.
Looking Ahead
2023 was a year of economic turbulence, characterised by slowing growth, a shifting labour market, and evolving monetary policy. For Msquared Capital, this environment necessitates adaptive strategies to navigate the changing landscape. As we look forward to 2024, we remain committed to providing innovative and secure credit solutions, while being mindful of the broader economic context and its implications for our clients and investments.
In our view the RBA will likely continue its inflation-fighting rhetoric, but the need for further rate rises seems to have dissipated given rising unemployment and falling GDP per capita. It is highly unlikely that there will be significant property appreciation in the short-term unless interest rates are reduced more aggressively than anticipated. In addition, some property segments, such as holiday houses, regional areas, and commercial office space, have more inherent downside risk.
Overall, Australia is once again the ‘lucky country’, having been much more resilient than our peers. This is a testament to our resource-rich land, high immigration, farming, stable government, and that we are distanced far enough from other countries so as to not be entangled in their geopolitical mess. This is what allows our lucky country to weather most economic shocks relativity unscathed.
Paul Miron is managing director of Msquared Capital, a private credit provider with investment opportunities backed by quality property located primarily along Australia’s Eastern Seaboard; we ensure that all investment opportunities are based on risk-to-reward as our core offering, coupled with strong performance. Mortgage funds perform well during volatile times, and capital preservation is regular, with a reliable monthly income that gives our investors peace of mind.
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As interest rates, inflation and market sentiment fluctuate, investors are being urged to focus on data, not panic.
The Federal Budget may have softened some of its proposed tax reforms, but it has exposed a bigger issue: too many families are relying on wealth structures that no longer reflect the realities of modern life.
3 min
For many Australians, the 2026 Federal Budget initially felt like a direct challenge to the way wealth is created, held and transferred between generations.
The headlines were immediate: changes to capital gains tax, reforms to discretionary trusts, restrictions on negative gearing and increased scrutiny of investment structures. Unsurprisingly, affluent families, business owners and investors began asking the same question:
Is the way we hold our wealth still fit for purpose?
In recent days, the government has announced several significant amendments following industry consultation and public feedback, including exempting testamentary trusts from the proposed 30 per cent minimum tax and expanding capital gains tax concessions for small businesses.
The backdown is welcome. But it also highlights something much bigger.
This Budget has accelerated a conversation that many Australian families have been postponing for years.
The conversation is not really about tax. It is about wealth stewardship.
For decades, Australians have built wealth through businesses, property, investments and careful long-term planning. Yet many families have not revisited the legal structures surrounding those assets in years, sometimes decades.
We often see clients who have spent years building significant wealth, only to discover their legal arrangements no longer reflect their current circumstances.
Their children are now adults. They may own multiple properties.
They may have sold a business, entered a second marriage, become grandparents or accumulated digital assets that did not exist when their original estate plans were prepared.
The trust that distributes income may need to be reconsidered. The bucket company may no longer be so attractive.
The Budget has simply exposed a reality that already existed: wealth structures cannot remain static while life continues to evolve.
Importantly, trusts themselves are not the issue.
Trusts are legitimate planning tools that provide flexibility, protection and continuity. When used appropriately, they allow families to adapt to changing circumstances over time.
And neither is tax the issue, really. Getting the fundamentals right is more important for long-term, sustainable wealth than a few favourable tax treatments around the edges.
The real issue is complacency.
Too often, families create structures and assume the job is done. It isn’t.
Estate planning is no longer a document you sign once and file away in a drawer. It is an ongoing process that should evolve alongside your life.
We are also seeing a broader shift in how Australians define wealth itself. It is no longer just the family home and an investment portfolio.
Modern wealth includes businesses, digital assets, cryptocurrency, intellectual property, frequent flyer points and increasingly complex family arrangements.
At the same time, Australians are living longer than ever before, meaning wealth may need to support multiple generations simultaneously. This creates new responsibilities and new risks.
How do you help your children enter the property market without exposing family wealth to relationship breakdowns?
How do you structure wealth so that it remains a source of opportunity rather than future conflict?
These are the questions families should be asking now.
The recent debate surrounding testamentary trusts also serves as an important reminder that policy decisions can have unintended consequences for vulnerable Australians. It is encouraging that the government has listened to feedback and clarified its position.
But the lesson remains: the wealth landscape is changing.
Increasingly, governments, regulators and tax authorities are paying closer attention to how wealth is held and transferred. That means families cannot afford to adopt a “set-and-forget” approach to their structures.
The families who will be best placed for the future are not necessarily those with the greatest wealth.
They are the families with the greatest clarity. Clarity around ownership, succession and governance. And clarity around how wealth will transition from one generation to the next.
Ultimately, preserving wealth is not about avoiding change.
It is about preparing for it.
Because the greatest risk is not change itself.
It is losing the ability to respond to it.
Anthony Hunt is Co-Founder of Wealth Lawyers and former COO of Westpac Private Bank. He advises business owners, investors and affluent Australian families on wealth protection, succession planning and intergenerational wealth transfer
As interest rates, inflation and market sentiment fluctuate, investors are being urged to focus on data, not panic.
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