For those old enough to remember, the Muppets used to do a couple of news skits. There was Sam the Eagle, the self-important American Eagle that took the news cycle way too seriously – much like a channel 9 voice-over man.
And then there was Gary Gnu.
Gary Gnu had a segment: no Gnews is good Gnews with Gary Gnu. And indeed, he reported on the most mundane, crazy or meaningless news the Muppets producers could find.
After two years of lockdowns, COVID deaths and rising tempers and unrest, it was hoped 2022 would provide some relief.
Instead, 2022 has proved to be a difficult year in a year where no gnews would have gone down very gwell.
We got war, floods, extreme weather events, rising interest rates, rising inflation, crippled economies highlighted by border closures and a lack of skilled migrant workers, Elon Musk, the return of Trump, the overturn of Roe vs Wade in the US, countless deaths of loved actors, directors, sport stars, musicians, politicians, authors, journalists, Queen Elizabeth II and just to put an exclamation mark on the year Pele and Vivienne Westwood.
In Australia, we lost Olivia Newton-John, Rod Marsh, Shane Warne, Andrew Symonds, Archie Roach, Judith Durham, Uncle Jack Charles, Paul Green, John Hamblin (one of the great Play School presenters), Margaret Urlich, Mershall Napier, Kimberley Kitching, Peter Reith, Chris Bailey, Caroline Jones and Lilian Frank.
We leave 2022 a divided world. Hopefully, 2023 can bring some cheer.
Here’s a look back at the major events that shaped 2022.
In this article
- The war on Ukraine
- Energy crises continue
- Recession fears
- Inflation/interest rate rises
- Flooding rains
- What's the outlook?
- Did anything good happen in 2022?
2022 was the year, more than any other, that macro events influenced the markets.
None more so than the ongoing war in Ukraine.
Russian President Vladimir Putin’s invasion of Ukraine on February 24 drove a commodity price shock, caused an energy crisis and brought supply chains to a halt.
That’s not to mention the thousands killed, millions made homeless and a cold war of sorts that pits Russia, with the exception of Iran and North Korea, against the rest of the world.
Broad volatility in the markets has persisted since the invasion and there is no end in sight.
Putin sent 200,000 soldiers to Kyiv in February as Russia looked to depose the sitting government.
The reason: “demilitarise and de-Nazify Ukraine” and free the people from eight years of genocide committed by the Ukraine Government.
No evidence of Russia’s accusations of Nazification or genocide exist but broader theories remain: that Putin is attempting to re-unify the Soviet Union and that it was a move to maintain Ukraine’s neutral status in world affairs by preventing it from joining NATO.
For Russia, a six-week invasion has turned into a year-long battle with no winners. It made some gains when it captured the port city of Mariupol in Donetsk in mid-May which provided Russia with a much-needed land corridor from the border to Crimea, the Ukrainian peninsula seized by Russia in 2014.
Note, in October this year Ukrainian forces destroyed part of the only bridge connecting the occupied Crimean Peninsula to Russia.
Luhansk was another city to fall.
Overall, though, the Russian invasion has been a failure.
Ukraine has dug in its heels and pushed Russian troops back. President Vlodymyr Zelensky has become a household name and in many eyes a global hero, even adorning the cover of Time magazine.
The UK, US, Australia and other countries have supplied the besieged nation with weaponry and other support.
Meanwhile, NATO has strengthened its foundations with applications from Finland and Sweden to join it.
Energy crises continue
A spill over from the war on Ukraine has been the energy crisis.
According to the head of the International Energy Agency (IEA), tightening liquified gas (LNG) markets and cuts to oil production puts the world in the middle of its ‘first truly global energy crisis’.
In 2021, Europe imported US$117 billion in energy from Russia, which included about 40% of Europe’s natural gas consumption and 30% of its crude oil.
It is yet to transition away from reliance on Russia, leaving European countries scrambling to fill up their underground gas storage reserves for the colder winter months.
Until recently, Europe received ample amounts of natural gas from Russia through the Nord Stream pipeline. However, flows were halted in late August when Russia cut off flows to Europe via Nord Stream in response to Western sanctions.
EU countries put in place measures to cut consumption. The European Council said: “Member states will identify 10% of their peak hours between December 1, 2022, and March 31, 2023, during which they will reduce the demand.
“They will be free to choose the appropriate measures to reduce energy consumption for both of these targets.”
France and England implemented their own measures.
In the US, President Joe Biden banned Russian oil imports.
In Australia, gas and electricity prices have been upwardly influenced by not only the Ukraine war but also factors including a reduction in available power supplies, changes to the regulation of transmission and distribution networks and competition in electricity wholesale markets due to low demand growth, under-investment in networks and the costs of the clean energy transition.
To combat rising prices, Prime Minister Anthony Albanese received parliamentary support and caps on gas prices at $12 per gigajoule for 12 months as well as providing $1.5 billion in federal assistance for bill relief.
The power companies complained and opposition leader Peter Dutton warned that prices would climb higher under the measures.
“These sorts of market interventions don’t just restrict themselves in terms of the impact to the energy sector, there will be other companies in other sectors who are looking to invest here at the moment, who will be looking at the sovereign risk that’s created out of this and questioning whether they will invest in agriculture or whether they’ll invest in the manufacturing, advanced manufacturing, into the healthcare sector,” Dutton said.
Albanese countered the opposition to his legislation in saying, “This is a very modest package … a modest intervention that’s required because of the extraordinary circumstances.
“I say this to the sector – they want to be careful that they aren’t talking themselves down because there are big opportunities for future investments.
“If you go out there and you say, oh, this will inhibit investment, this will create issues for us going forward, then you’re essentially talking down your industry, and I see no reason, there’s nothing in this legislation, that should require that sort of conversation.”
There is no doubt from any side of politics that prices will rise. Whether this legislation has a material impact on households’ bottom lines or not, remains to be seen.
The crisis will be felt well into 2023.
Just before Christmas, Australia joined the G7 in implementing a price cap on Russian oil. Australia agreed to the price cap of US$60 (A$89) per barrel of seaborne Russian-origin crude oil.
The cap is designed to maintain a reliable supply of oil to the global market while reducing the revenue Russia earns from oil.
In response, Putin signed off on a five-month ban on the supply of crude oil and oil products to nations that impose the cap.
"Deliveries of Russian oil and oil products to foreign entities and individuals are banned on the condition that in the contracts for these supplies, the use of a maximum price fixing mechanism is directly or indirectly envisaged," a Russian decree stated, referring specifically to the United States and other foreign states that have imposed the price cap.
"This … comes into force on February 1, 2023, and applies until July 1, 2023."
Crude oil exports will be banned from February 1, however, the date for the oil products ban will be determined by the Russian government and could be after February 1.
Whatever happens, expect the continuation of gas and electricity bill shock, pain at the bowser and fluctuating commodity prices.
Recession fears
The R-word raised its head in 2022.
It seems recessions in Europe are inevitable as gas prices increase and Russia cuts off energy supply.
Meanwhile, the central banks of Europe and the UK are determined to drive down inflation, by continuing to raise interest rates.
While recessions across the globe have been hinted at, the word from analysts has been they will only be mild.
“The recession expected to hit Germany this winter will be milder than previously anticipated, with economic output shrinking by only 0.1% in 2023,” Munich-based forecaster the IFO Institute for Economic Research noted in a report.
In the UK, gross domestic product (GDP) fell 0.3% between July and September, a downward revision from a first estimate of a fall of 0.2%, as the country remained on the brink of a recession.
“The data confirms expectations that the UK economy is heading towards a recession given the downward revision to the latest quarterly GDP figure,” according to Victoria Scholar, head of investment at interactive investor.
The US is not officially in recession, but a mild one is expected in 2023.
"We would enter 2023 with a more defensive posture, with an eye on adding risk as the market begins to more fully reflect the likelihood of recession," Canaccord wrote.
That said, the US has seen a slowdown in GDP over two quarters but the unemployment rate remains low and with pandemic payments still shielding people from the worst of the cost-of-living pressures, fuel and commodity prices falling (we’ll see what happens with fuel prices in 2023), the cost of some basic household necessities returning to pre-inflationary price points and supply chains normalising, the US may avoid a recession completely.
In Australia, a recession is unlikely, and the stock market is predicted to remain stable.
Wealth Within chief analyst Dale Gillham wrote recently, “The question right now is if Australia does go into a recession in 2023, will the stock market dip again?
“I believe this is unlikely, as the market is indicating that it will rise in 2023. The COVID recession was a little over two years ago, and unlike what occurred after previous recessions, our market has not been overly bullish.
“Given what has unfolded in the last two years, including the increasing inflation and rising interest rates, I believe the market has already factored in a recession.”
Inflation/interest rate rises
The situation in Australia is reflected globally. The central bank continues to raise interest rates to fight inflation.
In the UK and US inflation looks to be easing and while Australia recently recorded cooling inflation data, we are not out of the woods yet.
In Australia, inflation is expected to reach 8% before declining in 2023. The annual inflation rate was 7.3% in the September quarter, so we may well have peaked in Q4 – we’ll know shortly.
On Tuesday, May 3, 2022, the Reserve Bank of Australia (RBA) announced it was lifting the cash rate from a historical low of 0.10% per annum to 0.35% per annum.
Since May, Australians have endured seven rate hikes, with the current cash rate sitting at 3.10% up from the historic low of 0.10%.
This was the first rate increase since November 2010.
Was the 0.10% too low? Yes.
Did the RBA overreact to the impact of COVID? That can be debated.
Between low interest rates and government stimulus there was too much money flowing through the economy.
The RBA now faces a tough path forward in raising interest rates enough to curb inflation, without tipping the country into recession.
The forecast is for another two rate hikes to help bring inflation down.
“The bank’s central forecast is for CPI inflation to be around 4¾% over 2023 and a little above 3% over 2024,” RBA governor Phillip Lowe said.
That’s a big drop from 8%.
Flooding rains
Another contributing factor to the high cost of living and shifting commodity prices has been relentless flooding which has left thousands of Australians homeless and with massive property damage. Farmers have lost crops, driving up the price of food.
The insurance bill for storms and floods since January 2020 has topped $12.3 billion according to the Insurance Council of Australia.
That’s the impact of four years of La Nina.
Fortunately, that devastating weather pattern is expected to wane.
However, the cost of flooding throughout Australia is in the billions and communities will take years to rebuild. As we write, the Murray’s rising riverbank is forcing people in Mannum in South Australia to flee their homes, while in Cowirra properties will be left isolated.
There’s not much more that can be said or written about the pre-COVID droughts and the floods of the past two years, but it’s important to take time to reflect on the damage done to local and remote communities and urge local government, state government and federal government to plan for the future, not react to it.
What’s the outlook?
The outlook for 2023 remains uncertain. The war is ongoing. Interest rates will continue to rise until inflation comes down. China can’t control its COVID outbreaks but is opening its economy and its borders.
How the markets react is anyone’s guess, although 2023 is forecast to be another steady year for the ASX compared with its global counterparts.
According to Macquarie’s Michael Silverton, “It's critical to take a longer-term view and focus on areas of structural opportunity, rather than just focusing on macroeconomic factors.
"The continued themes of electrification and digitisation are examples of areas that will require substantial investment and drive significant M&A activity; while private sector collaboration will play a critical role in the delivery of important government policy goals in healthcare, education and infrastructure."
So, while short-term issues will continue to create an uncertain environment, the long-term view is that the issues that have marked 2022 will abate.
Did anything good happen in 2022?
While the world has been wearied by major events in 2022, there was good news.
Here’s a list of 10 positive developments:
- After 70 years in extinction, India saw the return of the Cheetah.
- Board diversity. A new report from Purpose Bureau examining the failure rate of Australian businesses in 2021 found that companies with single-gender boards were 37% more likely to fail. The report had a huge sample size – examining almost 1 million businesses – which gives the findings significant validity. Purpose Bureau CEO Nick Kamper said the findings “clearly suggests that gender diversity in leadership leads to better business outcomes".
- Australia’s performance at the Commonwealth Games.
- Australia’s performance at the World Cup.
- Cancer deaths fell substantially in the United States, Canada, Europe and Japan, and Rwanda revealed it is on track to become the first country in the world to eliminate cervical cancer.
- A new drug for Azheimer’s patients was shown to slow memory decline by 27% over 18 months.
- Borders opened and travel returned to normal (well almost, prices are jacked up at the moment!).
- Live concert performances returned in a big way as did the movie theatre experience for big blockbuster movies.
- Businesses and governments revamped their ESG and climate policies.
- The end of COVID restrictions and a return to normal living.
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