The IMF has suggested there are risks towards the Australian economic outlook in 2023 due to the uncertainties in several sectors along with slow economic growth and persistent inflation. Due to the structure of their investment portfolios, Aussie baby boomer investors will take the biggest hit.
While economists predict that Australia will avoid recession, economic growth is still expected to drop in 2023. The Reserve Bank of Australia has increased the official cash rate from 0.1% at the beginning of 2022 to 3.1% at the end of the year, and the average forecast at an industry panel run by The Conversation is an increase in the bank’s cash rate target from 3.1% to 3.6% during 2023. Continued rate hikes in 2023 will weigh on the ASX, with the panel of economists forecasting. This will decrease the interest towards equities and deflate the stock prices in Australia.
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According to GlobalData’s Retail Investments Analytics 2022, Australians have a good number of investments allocated to equities, hence a major shift in the market can negatively impact the investments of the population.
However, the investment pain is not uniformly spread. As per GlobalData’s Investor Insights: Investment Drivers Analytics 2022, baby boomers had the most allocated to equities with 32.1% of their non-superannuation investment portfolio in the asset class in 2022. On the other hand, the data also shows that Generation Z have the lowest shares of equity among all generations at just 18.9% in 2022, making them least susceptible to the weak growth in 2023.
Wealth managers in Australia need to be aware of this upcoming economic threat to their most lucrative clients, the baby boomers, and ensure these investors do not unduly lock in the low stock market prices expected in 2023. A down year in the financial markets is never a pleasant prospect for investors, but wealth managers need to make sure this does not permanently damage clients’ finances, particularly those in retirement or about to retire, like the boomers.
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