Add articles to your saved list and come back to them any time.<\/p>\n
Mark Delaney, chief investment officer of the country\u2019s biggest super fund, says a recession is coming as central banks double down to keep inflation in the bag.<\/p>\n
Speaking to investors at a Morningstar conference on Wednesday, the AustralianSuper boss, who believes it is \u201cbetter to be broadly right than precisely wrong\u201d, said his portfolio had been adjusted for a downturn.<\/p>\n
\u201cOur view is a recession is most likely,\u201d Delaney said. \u201cI think central banks can\u2019t afford to let inflation get out of the bag. Who wants to be the central banker who brought back inflation?\u201d<\/p>\n
<\/p>\n
AustralianSuper\u2019s chief investment officer, Mark Delaney, said inflation would worsen in the medium term.<\/span>Credit: <\/span>Janie Barrett<\/cite><\/p>\n Delaney said while people would forgive central banks for overseeing a recession, history would \u201cwrite them off\u201d for persistent price increases. \u201cPeople won\u2019t forgive them for ongoing inflation,\u201d he said.<\/p>\n In a shock decision for markets, which had broadly expected a pause, the Reserve Bank raised the cash rate to 3.85 per cent in May, up from a historic low of 0.1 per cent in April last year.<\/p>\n It was the latest move in the RBA\u2019s battle to stifle inflation through increasing borrowing costs, after it raised the cash rate in nine out of 10 of its previous meetings in the past year.<\/p>\n \u2018People won\u2019t forgive them [central banks] for ongoing inflation.\u2019<\/p>\n But these rate increases have also given rise to concern that the RBA could push the economy into a recession. It would be just the second time in 30 years that Australia has experienced two consecutive quarters of negative growth \u2013 after the first two quarters of 2020 when the pandemic hit.<\/p>\n Views on the likelihood of a recession have been mixed.<\/p>\n AMP\u2019s chief economist, Shane Oliver, estimates Australia\u2019s economy has a 45 per cent of recession, while Deloitte Access Economics head Pradeep Philip says the RBA is \u201cplaying recession roulette\u201d.<\/p>\n CME Group senior economist Erik Norland said the risk of a recession in Australia was relatively low because of the shape of the yield curve. While an inversion of the yield curve can indicate a recession, he said in Australia the curve was \u201cfairly flat and very slightly positive, which is a sign of perhaps slowing growth but not an outright downturn\u201d as is the case in the US.<\/p>\n Rival superannuation player Vanguard on Tuesday said it expected the likelihood of recession to be about 50 per cent for Australia.<\/p>\n But Delaney said the central bank would keep leaning into inflation, and that while it would increase the probability of a recession, the RBA would ultimately succeed in taming inflation to a level that is \u201cbetter than people anticipate\u201d over the shorter term.<\/p>\n Inflation in the medium term, however, could worsen, he said, as structural factors such as tight labour markets, de-globalisation and the energy transition push inflation higher.<\/p>\n AustralianSuper\u2019s portfolio, which comprises more than $250 billion in member assets, has been geared for a recession after conversations about the prospect arose about a year ago.<\/p>\n \u201cWe\u2019re short stocks and long bonds,\u201d Delaney said. \u201cIf you\u2019re going to have a recession, bonds are likely to go up … so we\u2019ve bought a lot of those and funded it predominantly out of stocks and running down our big risk assets.\u201d<\/p>\n The key to managing the downturn, Delaney said, was to \u201cbe decisive but avoid precision\u201d.<\/p>\n The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. <\/i><\/b>Sign up to get it every weekday morning<\/i><\/b>.<\/i><\/b><\/p>\nMost Viewed in Business<\/h2>\n
From our partners<\/h3>\n