AMP CEO Alexis George warns of recession risk as cheap money dries up

AMP is facing some of its toughest trading conditions as the flow of cheap money that helped fuel returns dries up, chief executive Alexis George says.

AMP chief executive Alexis George warns some of the factors that contributed to the economy’s resilience are beginning to subside.

AMP is facing challenging trading conditions as the flow of cheap money that helped power the economy for more than two decades has come to an “abrupt” end, chief executive Alexis George has told The Australian’s 2024 CEO Survey.

Ms George, who heads one of the nation’s oldest wealth managers, said the company, which also has a commercial banking business, was entering “a particularly challenging economic environment”.

“We, like most of our bank peers, are facing some of the toughest trading conditions in recent history, driven by a combination of increased funding costs and intense competition,” she said.

She also warned that with the economy slowing down in 2023 and mortgage pressures increasing, “a recession is a risk” as we enter the new year, “particularly if the RBA continues to raise rates”.

Ms George said that gradually cooling inflation should start to take pressure off official interest rates through 2024. In the meantime, however, cost of living pressures were likely to intensify as the full impact of the steepest interest rate hiking cycle in generations hits the economy.

“We are starting to see an increase in calls from customers facing financial hardship in our contact centres and our teams, who are … doing an amazing job to work with those customers on solutions to support them through this challenging period,” she said.

Australian banks, including AMP’s banking unit, have seen only a modest increase in loan arrears this year, as a significant savings buffer among borrowers as well as a strong job market have helped absorb the impact of 13 increases to the RBA cash rate since May 2022.

The hikes pushed the cash rate to 4.35 per cent, from near zero, and increased mortgage interest rates from about 2 per cent to over 6 per cent.

“The majority of our bank customers have good financial buffers and we’ve only seen a small increase in refinancing this year,” she said.

However, refinancing activity “will likely ramp up as saving buffers wear off and cost of living pressures really kick in.”

Ms George warned some of the factors that had contributed to the economy’s resilience – including stronger population growth, more borrowers on fixed rate mortgages, and strong exports – were beginning to subside.

“Aside from the strong population growth, these other supports are starting to wear off, with job vacancies down significantly from their highs, which is pointing to an easing jobs market,” she said.

On the superannuation and investment platform side of AMP’s business, a period of strong returns from growth assets had morphed into a low growth environment. This was seeing investors dump managed funds in favour of term deposits and cash, as they were now offering higher rates with lower risks.

AMP’s investment management team has been making structural changes to its superannuation asset allocations, moving away from alternative investments and listed property and into public market credit and private debt, which offer equity-like returns with lower risk.

Ms George’s comments are in line with those of other corporate bosses, who are preparing for a slowdown in coming months.