March ECONOMIC UPDATE

By Craig Turnbull, Active Super Chief Investment Officer
March 2022

The past few weeks have been eventful and challenging as the economic turnaround driven by consumers late last year is facing serious hurdles following Russia’s invasion of Ukraine and catastrophic flooding across NSW and Queensland.

Even though the economy grew by a respectable 3.4 percent in the December quarter, the government has warned that the unpredictable geopolitical situation and natural disasters may deal a blow to the strong recovery.  The economy had contracted 1.9 percent in the September quarter due to Covid-related lockdowns.

Gross domestic product for the December quarter propelled the annual rate to 4.2 percent as consumers and household spending on goods and services drove most of the growth.

The Australian Bureau of Statistics said it was the largest quarterly expansion since the 3.4 percent improvement in the September quarter of 2020.

The global economic and financial market outlook has been muddied by events in Ukraine, resulting in the S&P/ASX 200 falling around 3 percent over the past month.

The Australian market has shown some resilience thanks to a strong performance by corporates during the half-yearly earnings season and a significant spike in commodity prices, in particular oil.

Further support stems from the fact that global corporate earnings growth remains solid and the global economy is continuing to recover from Covid restrictions with a growing vaccination rate and the less-severe Omicron variant.

Diversification is key

The situation in Europe creates uncertainty and the impact on markets at the moment is a good reminder why diversification of investments is important.

The principle of diversification is when you spread your investment between more than one asset class. The intended result is to achieve more stable investment returns. 

In other words, the total returns of a diversified portfolio are not expected to fluctuate as much as the returns from investing solely in one asset class. Active Super adds further diversification by spreading funds across a group of specialist fund managers.

Members should keep in mind that factors such as geopolitical conflicts, interest rates and exchange rates, government policy, and the state of domestic and world economies can impact financial markets and, therefore, your investment.