Economic Challenges Ahead says Bill Evans

Westpac Group’s Chief Economist, Bill Evans, has predicted major challenges for Australia on the fiscal front, with inflation and interest rates on the rise and mortgage rates set to peak at between five and seven percent over the next two years.

Evans, one of Australia’s most sought-after economists, was speaking at Matthews Steer’s Wealth Advisory Luncheon on April 28.

Fresh from issuing Westpac’s forecast of a 15 basis point interest rate increase at the RBA’s next policy meeting on May 3, saying: “(the RBA) has an obligation to contain inflationary expectations,” Evans told luncheon guests: “The RBA has to react to the inflation numbers. If they weren’t to go, people would think they are too slap-dash on inflation”.

Despite predicting imminent interest rate pain, Evans retained some optimism about the Australian inflation rate saying: “I think we’re not going to end up with a 1970s-style explosion in inflation.

“Fuel price is a big contributor to the inflation rate but we think oil prices will peak around 100, 120 and the petrol prices are actually going to fall this quarter, so some of the inflation pressures will actually come out of the system.”

Evans shared a range of valuable insights around the key factors and forces likely to shape and define the local and global economic landscape in the coming years including the potential impacts of the ongoing COVID lock-downs in China, the outlook for the global supply chain, and the state of the US economy.

Bill Evans on potential Australian tax increases

“We used to be really, really good on debt as a proportion GDP. We were around 30 percent and countries like the US and the UK are between 80 and one hundred percent, but we’ve ramped up to around 50 percent. The bottom line is that we have to learn to live with more debt. And, the only way to really address that, given those costs that are built into the system now is high taxes. So at some point (the government) may decide to go down that route, but with a three-year election cycle, not many people are too brave to raise taxes.”

Bill Evans on China

“We know that what (Xie Jinping) may well do is have a stimulus. Remember after the GFC, the reason why we didn’t have a recession was that China had a massive stimulus in terms of infrastructure. So that may happen which indirectly will help us because they’ll mean more iron ore.”

Bill Evans on the global economic picture

“If you look at the three big negatives at the moment you have Europe and the impact on their cost of living (for example) Poland just had their gas supply cut off (by Russia). In the US, the Fed is adamant it’s going to keep ramping up interest rates, and anyone that looks at the US is saying they are going to have a recession. And, thirdly, there are the China problems. So there are some big global issues that are out there, and unfortunately central banks have to focus on inflation. That’s their objective; to contain inflation.”

Bill Evans on the supply chain crisis

“A lot of the current global issues are around supply chains. The risk now is that COVID is not only in China, it’s across a lot of other Asian countries that are critical with supply chain, Korea, and Taiwan, so we could well see another supply chain dislocation going forward.”

Bill Evans on the Victorian housing market

“I believe is that affordability will get back to more acceptable levels, and that only happens one way: falling prices, because rates are going up. Those of you that have got investment properties in Brisbane, you’ve absolutely done fabulously. And I think that by the end of 2023, early first half 2024, Melbourne will be more affordable than Brisbane.”

Matthews Steer’s Wealth Advisory Luncheon was attended by more than 100 of Matthews Steer’s key clients, who enjoyed a three-course lunch at the RACV Club Collins Street’s Club Pavilion Room. If you are interested in attending future Matthews Steer networking events please email us.

If you are seeking Wealth Management or Financial Planning advice, Christine Brown and her team are here to help. Contact them on (03) 9325 6320 or email them.

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