As a new year begins, we wish everyone a happy, healthy and prosperous 2023. Many families will be glad to put 2022 behind them and although challenges remain, we look forward to better times ahead.

As 2022 drew to a close, investors remained focused on inflation, interest rates and recession worries. Inflation is running at around 7% to 11% in most advanced economies, including Australia (7.3%). The Reserve Bank of Australia (RBA) lifted its target cash rate by another 25 basis points to 3.1% in December, the eighth monthly rise in a row, up from 0.1% in May. The RBA noted that “inflation is expected to take several years to return to target range (2-3%)”, and most economists expect at least one more rate increase.

High inflation and borrowing costs continued to weigh on consumers in December. The ANZ-Roy Morgan consumer price index was steady at 82.5 points in the run-up to Christmas, 26 points below the same period the year before. Slowing consumer demand and rising costs also dragged the NAB business confidence index into negative territory for the first time in 2022, down to -4.4 points in November.

But it’s not all bad news. Australian company profits rose 18.6% in the year to September, the fastest pace in five years. Unemployment remains low, despite edging up to 3.45% in November and annual wages growth was 3.1% in the September quarter, the fastest pace in a decade. The Aussie dollar lifted slightly to US68.13c in December, down 6% for the year. Iron ore prices lifted 8% over the month but were down 1% for the year, while oil prices (Brent Crude) eased slightly but were up 11.4% in 2022 as war in Ukraine disrupted supply.

2022 Year in Review

Inflation dominated the economic landscape

The year began optimistically, as we finally began to emerge from Covid restrictions. Russia threw a curve ball that reverberated around the world and suddenly people who hadn’t given a thought to the Reserve Bank were eagerly waiting for its monthly interest rate announcements.

2022 was the year of rising interest rates, surging inflation, war in Ukraine and recession fears. These factors created cost-of-living pressures for households and a downturn in share and bond markets.

Super funds suffered their first calendar year loss since 2011. Ratings group Chant West estimates the median growth fund fell about 4 per cent last year.ⁱ

The big picture

Even though investors have come to expect unpredictable markets, nobody could have predicted what unfolded in 2022.

Russia’s invasion of Ukraine in February led to a global economy and investment markets shake up. It disrupted energy and food supplies, pushing up prices and inflation.

Inflation sits around 7 per cent in Australia and the US, with the Euro area around 11 per cent.ⁱⁱ

As a result, central banks began aggressively lifting interest rates.

Rising inflation and interest rates

The Reserve Bank of Australia (RBA) lifted the cash rate from 0.1 per cent in May to 3.1 per cent in December,ⁱⁱⁱ quickly flowing through to mortgage interest rates.

Australia remains in a better position than most, with unemployment below 3.5 per cent and wages growth of 3.1 per cent running well behind inflation.^iv

Australia’s economic growth increased to 5.9% in the September quarter^v before contracting to an estimated 3 per cent by year’s end.^vi

Volatile share markets

Investors endured a nail-biting year.

Global shares plunged in October only to snap back late in the year on hopes that interest rates may be near their peak. The US market finished 19 per cent lower, due to exposure to high-tech stocks and the Federal Reserve’s aggressive interest rate hikes. Chinese shares were down 15 per cent as strict Covid lockdowns shut down much of its economy.

Australian shares performed well by comparison, down just 7 per cent.

Energy and utilities stocks were strong due to the impact of the war in Ukraine on oil and gas prices. The worst performers were information technology, real estate and consumer discretionary stocks due to cost-of-living pressures.

Property slowdown

After peaking in May, national home values fell sharply as the Reserve Bank began increasing interest rates. The CoreLogic home value index fell 5.3% in 2022, the first calendar year decline since the global financial crisis of 2008.

Sydney (-12 per cent), and Melbourne (-8 per cent) led the downturn. Bucking the trend, prices edged higher in Adelaide (up 10 per cent), Perth (3.6 per cent), Darwin (4.3 per cent).

Rental returns outpaced home prices, as interest rates, demographic shifts and low vacancy rates pushed rents up 10.2 per cent in 2022. Gross yields recovered to pre-Covid levels, rising to 3.78 per cent in December due to strong rental growth and falling housing values.

Despite the downturn, CoreLogic reports housing values generally remain above pre-COVID levels. At year end, capital cities combined were still 11.7 per cent above March 2020 levels, while regional markets were 32.2 per cent higher.

Looking ahead

While the outlook for 2023 remains challenging, there are signs that central banks are nearing the end of their rate hikes.  

Issues for investors to watch out for in the year ahead are:

• A protracted conflict in Ukraine

• A new COVID wave in China disrupting supply chains further, and

• Steeper than expected falls in Australian housing prices which could lead to forced sales and dampen consumer spending.

Note: all share market figures are live prices as at 31 December 2022 sourced from: https://tradingeconomics.com/stocks.
All property figures are sourced from: https://www.corelogic.com.au/news-research/news/2022/corelogic-home-value-index-australian-housing-values-down-5.3-over-2022

i https://www.chantwest.com.au/resources/another-strong-month-for-super-funds-as-recovery-continues/

ii https://tradingeconomics.com/country-list/inflation-rate

iii https://www.rba.gov.au/statistics/cash-rate/

iv https://www.rba.gov.au/snapshots/economy-indicators-snapshot/

v https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release

vi https://www.rba.gov.au/publications/smp/2022/nov/economic-outlook.html

Get set for eInvoicing

The rollout of electronic invoicing (or eInvoicing) is gaining momentum in Australia – and globally – as a new and more efficient way to deal with the paperwork involved in sending and receiving business invoices and procurement documents.

For small business owners, the arrival of eInvoicing might sound like yet another task to add to your ever- expanding to-do list. But rather than being another bureaucratic box to tick, it has the potential to save you and your business both time and money.

What is eInvoicing?

eInvoicing is a process to streamline invoicing. It’s different to sending an email or PDF through your current software, as it involves directly exchanging a standardised format eInvoice via software used by both the buyer and supplier.

Australia has adopted the international Peppol eProcurement framework as its common standard for automated digital exchange of invoice and procurement information.

The Commonwealth appointed the ATO as Australia’s Peppol authority and it is responsible for developing and administering the local framework and authorising approved service providers. Although it sets local standards, the ATO can’t view the contents of any eInvoices being transmitted between businesses.

Currently it’s not compulsory for businesses to use eInvoicing, but the trend is well underway in the public sector. The Commonwealth made it mandatory for all its agencies to adopt the framework by 1 July 2022, with several state governments also committing to its introduction.

Benefits of eInvoicing

Once a business implements eInvoicing, it no longer needs to print, post or email paper-based or PDF invoices. Purchasers no longer need to manually enter or scan invoices into their software.

Businesses connect via a secure network and can immediately transact with their registered trading partners through approved access points to exchange invoices and other procurement documents. Once the sender creates an invoice, the information is sent directly and securely to the receiver’s software for approval and payment.

According to the ATO, eInvoicing is “a more efficient, accurate and secure way to transact with your suppliers and buyers than current systems using PDF and email”. Experts estimate its introduction could save the Australian economy $28 billion over 10 years.ⁱ

The benefits for small business include a reduction in the cost and time involved in invoicing and better control of your invoicing process without the need for repetitive manual entry and chasing lost or inaccurately addressed invoices.

Other advantages include greater visibility of the delivery status of your invoices and reduced risk of fake or compromised invoices. As Peppol is an international framework, it also enables and simplifies exchange of procurement documents and invoice information across borders.

How to get ready to switch

Making the switch to eInvoicing can be fast and easy for a small business, as your current accounting software (such as MYOB or Xero) could already be eInvoice enabled.

If you don’t use accounting software, some software providers offer free and low cost options. Alternatively, you can connect your software to an add-on eInvoicing product or purchase accounting software offering eInvoicing tools.

Enterprises without business management software may be able to use an eInvoicing web portal, as some providers offer services to small businesses that send or receive few invoices.

If you would like more information or help to get started, give us a call.

Planning for a seamless transition

An important step in moving to eInvoicing is to identify and understand your current invoicing and purchase order processes, including the number of invoices sent and received, how often this occurs and your top suppliers and buyers.

You can then talk to eInvoicing service providers and your current software providers to review your options.

It’s sensible to also discuss the transition with your trading partners. You can check the Peppol Directory for registered users and the business documents they can receive.ⁱⁱ

If you do move to eInvoicing, you may need to alter some of your internal processes to accommodate its standardised approach. The ATO offers an eInvoicing Value Assessment Questionnaire you can work through to determine whether it would be of value for your business.ⁱⁱⁱ

i https://www.ato.gov.au/business/eInvoicing/eInvoicing-for-government/

iii https://www.ato.gov.au/uploadedFiles/Content/SBIT/e-invoicing/In_detail/eInvoicing%20value%20assessment%20questionnaire.pdf