As people look into the crystal ball of what lies ahead in 2023, the specter of further rate of interest hikes looms large – but that is only a part of the story.
In fact, while many predict the economy will proceed to slow next yr, some points of the slowdown could also be to your advantage, depending in your position.
To begin with, it may possibly be assumed that the Reserve Bank will raise rates of interest once or a minimum of twice in the primary half of 2025. Assuming they increase by 0.25% every time, bringing the RBA money rate to three.6% and possibly will push mortgage rates to the 7% range.
So it can be difficult for homebuyers and anyone who falls off the so-called “fixed rate cliff” and back to floating rate. This can add one other $1,000 a month in mortgage payments for a $600,000 mortgage.
This is a downside. One of the positives is that each one the pain pays off in the shape of lower inflation. Inflation fell to six.9% last month, and better rates of interest are prone to bite and push it down next yr.
Some of the availability chain issues within the economy may ease, fuel prices could have peaked, and if the Albanian government can deliver lower or minimal increases in energy prices, that can be one other positive.
Wages are also prone to increase, albeit slowly. At the moment, they’re growing by about 3.1%, and while this may not be enough to catch inflation, the gap may close in 2023, so the pressure on the fee of living will not be as severe.
Unemployment is at a decades-low of three.4% and while it could rise, nobody is yet predicting a recession in Australia, defined as two-quarters of negative economic growth.
On the positive side of upper rates of interest is prone to be an extra fall in property prices, so although it can cost more to borrow, it can be cheaper to purchase.
On the exchange, the ASX 200 ended 2022 kind of where it began, which is an excellent result given the volatility.
Returns for many pension funds had a difficult begin to the yr, but on average could end positively, helped by a rebound of around 3% in October. This may reassure a few of us who’re making it hard, but know that a minimum of our retirement savings will not be going backwards.
If you don’t love the stock market, you will have the opportunity to get well rates in your savings deposits if you may have one. Banks are known for setting the rates of interest they lend at much higher rates than those on savings, but a minimum of rates of interest on deposits have risen from near zero over the previous couple of years.
All up, it is a mixed picture. If you may have an excellent deposit and wish to purchase a house or are on the lookout for a good rate of interest in your savings, you can be on the fitting side of the economy next yr. You may even discover a latest job for a better wage.
For the remainder of us, the utterly unsexy way forward is to easily repay as much debt as possible.
If the fee of cash goes up and the worth of the asset goes down, you do not need to have more debt resulting from a decreasing asset and you do not need to pay more interest on the identical amount of debt.
So welcome 2023 with clear financial conviction. Let’s hope all of us make it through this, richer and more prosperous despite all of the volatility.