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‘Short and shallow’ recession on the way: Macquarie

5 minute read

The head of wealth management investment strategy at Macquarie has outlined the firm’s expectations for a recession later this year.

Macquarie has joined the chorus of voices predicting that a recession is looming on the horizon, which the firm has predicted will be “short and shallow” and later than originally anticipated.

Speaking at the Stockbrokers and Investment Advisers Association (SIAA) 2023 conference on Tuesday, Macquarie head of wealth management investment strategy Jason Todd said that most economists had come into 2023 thinking that a recession would be a first-half issue.

Under this scenario, economists had expected that the economy would show signs of recovery towards the end of the year before beginning to pick up again in 2024.


“The surprise has not been that things have weakened. Things have weakened. The surprise is that they have not weakened as much as expected and that the timing of that weakness has been slower to actually arrive,” Mr Todd explained.

According to Mr Todd, Macquarie is of the view that a lot of the risks facing the economy are “not particularly significant” in terms of driving a deeper or more prolonged downturn.

In the anticipated environment of rolling recessions that Macquarie has forecast, going from industry to industry, sector to sector, and economy to economy, Mr Todd suggested that the downturn will not be as deep given the lack of public shock.

He also said that very few pieces of data currently indicate that a deep economic downturn will take place. In terms of the movements of interest rates around the world, Mr Todd said that they had tightened but were still not “extremely tight”.

“The risk is not that they get tighter, the risk is that they actually stay tighter for a longer period of time, and you actually just squeeze the general backdrop,” he warned.

“But the support that everyone has become familiar with — because it’s very relevant here for Australia — is that the consumer is still strong, everyone has savings, the labour market is still strong, and these are the supports,” Mr Todd continued.

“As we stand here now, our view is still that things are likely to continue to slow down through the second half of the year. Nothing is suggesting at this stage that you’re going to have a deep or dark or prolonged downturn.”

Looking ahead, Mr Todd said that the environment of slower growth, higher rates, higher inflation, and greater volatility would result in lower risk adjusted returns.

“But what it also means is that we’re going to need to have portfolios diversified more. There will be much more focus on resiliency and downside protection for how we want to structure portfolios of clients,” he added.

“Instead of actually buying entire sectors, or entire regions, or entire markets, we will be more focused on structural growth opportunities because the tailwinds, cyclically, are not as broad or as strong.

“You’ll have inflation hedging, and the way to actually chase returns — which is in private markets — will require a significant illiquidity premium to actually have your money tied up. And then, clearly as everyone in the room knows, there will be a lot more focus on these non-traditional assets.”

Last week, AustralianSuper’s chief investment officer said that a recession was “most likely”, with the fund positioning its portfolio for this scenario by being short stocks and long bonds.

Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.