Super hit hard + Recession warning we can't ignore

Hi everyone,

The Middle East crisis continues to dominate the media and now the economic consequences are starting to flow through. While the rise in petrol prices was the first and most obvious impact, it is now starting to shape economic data and forecasts and returns from your superannuation fund.

In this week’s newsletter we look at some of those wider implications starting to emerge:

• The International Monetary Fund slowdown warning.

• Consumer and business confidence goes into shock.

• Your super fund returns take a hit.

• New home sales are rising strongly.

• Your travel insurance questions answered.

• The ghost of cheap petrol and 30-cent soft serves.

The International Monetary Fund slowdown warning

Global economic think tank, the International Monetary Fund (IMF), has begun recalibrating its forecasts for global growth as a consequence of an extended Middle East conflict.

The IMF has outlined three scenarios for the world economy, with the most severe described as “a close call for a global recession, which has happened only four times since 1980.”

The baseline scenario has been downgraded by 0.2 percentage points to 3.1 per cent growth this year. Under its “severe” scenario, annual growth falls from the current 3.4% per cent to 2 per cent this year, while inflation rises to 6 per cent.

For comparison, that would mark an economic downturn on par with the Global Financial Crisis and the COVID-19 pandemic.

Closer to home, its base case for Australian economic growth has been downgraded to 2 per cent this year and 1.7 per cent next year (from its previous forecasts of 2.1 per cent and 2.2 per cent respectively). It expects Australian inflation to hit 4 per cent this year and 3.2 per cent next year.

Under the worst case scenario, the Australian economy would slide into economic recession.

Consumer and business confidence goes into shock

I often say that people see the economy as this big inanimate object, rather than a reflection of the living breathing human beings who drive it. Economies are a mirror of our behaviours and confidence.

And it’s fair to say, the Middle East crisis is spooking all of us as consumers and also our bosses. That’s dangerous, because if we all stop spending and our bosses stop hiring and investing, the consequences can be devastating for the economy.

That is why the latest consumer and business sentiment data is a real worry … it reveals there has been a collapse since the outbreak of conflict in the Middle East sent oil prices skyrocketing.

Business confidence recorded the second biggest monthly fall in the 37-year history of the NAB Business survey, while consumer confidence numbers plunged to near-historical lows in the largest drop since the start of the pandemic.

The Westpac-Melbourne Institute survey showed the consumer sentiment index plunged 12.5 per cent to 80.1 points in April, with household finances weighed down by record spikes in fuel prices and a further 0.25 per cent rise in interest rates handed down by the RBA.

But look at the breakdown of the figures. And remember this downturn has mainly occurred since the oil price hikes just six weeks ago. The outlook for things like ‘family finances’, ‘time to buy a major household item’ and ‘time to buy a house’ are all heading toward record lows.

Consumers are in the bunker as global uncertainty escalates.

It’s no surprise mortgage holders and renters are feeling the most dismal. Being hit by rising loan repayments and fuel costs is taking a big chunk of their disposable income.

Confidence within industries often drives employment and spending, so this graph shows where business confidence has been hit hardest. The implication is that these industries could potentially cut their workforce.

Your super fund returns take a hit

Superannuation balances fell sharply over March as events in Iran shook global financial markets and the disruption to global oil supplies sent shockwaves through economies.

Leading research house SuperRatings estimates negative returns across the balanced, growth and capital stable indices of superannuation funds.

The median balanced option is estimated to have declined by -3.2 per cent in March, wiping out the gains accumulated since September 2025. As a result, the financial year to date return for the SR balanced index has eased to 2.8 per cent - but is still a positive return.

The median growth option is estimated to have fallen by -4.1 per cent and even more defensive strategies were not immune, with the median capital stable option recording an estimated loss of -1.8 per cent over the period.

With only three months until the end of the financial year, some superannuation funds may find it difficult to exceed their long-term average return for FY25/26 if the Middle East crisis isn’t resolved soon.

Pension returns followed the same downward trend seen in accumulation indices, with SuperRatings estimating losses across balanced, growth and capital stable pension options in March will exceed accumulation option losses.

Hew home sales rising strongly

New home sales increased by 17.0 per cent in March, despite the rise in the cash rate and fuel prices.

The HIA New Home Sales report is a monthly survey of the largest volume home builders in the five largest states and is a leading indicator of future detached home construction.

Sales of new homes have been increasing since early 2025 and the disruptions of the past two months have not stopped this momentum, with sales for the March quarter 31.9 per cent higher than at the same time last year.

The growth in sales could partly reflect a growing involvement from first home buyers who are no longer required to take out mortgage insurance, although this data isn’t available through this data set. A jump in sales in New South Wales and Victoria is a welcome sign given their low volume of detached starts.

More broadly, demand for housing remains strong, supported by strong population growth and low unemployment. These structural drivers continue to underpin activity, even as borrowing costs rise.

By state, Queensland recorded the largest monthly increase in March, with a 34.3 per cent increase. This was followed by South Australia (+22.5 per cent), Victoria (+19.1 per cent) and New South Wales (+11.8 per cent) with Western Australia the only state to see a decline in new home sales contracts (-0.3 per cent).

Your travel insurance questions answered

I am being besieged by questions from readers about travel insurance at the moment.

The travel plans of thousands are being disrupted by the Middle East crisis and there is a lot of misinformation being spread.

So I checked in with the travel insurance gurus at Compare the Market to answer the most common questions you’ve been sending me, such as:

When should people be organising travel insurance?

As soon as you book. Full stop. We’re seeing a worrying trend of people buying travel insurance the night before a flight - or worse, after a crisis hits the headlines. Think of events like the California wild fires, Europe floods, the Bali volcano and of course, the war in Iran.

The problem is once something becomes a known event, whether that’s conflict, strikes or natural disasters, it’s generally excluded from new policies.

Buying early doesn’t just protect you while you’re away, it covers you in the lead-up, with cancellations, illness or family emergencies just as likely to derail a trip.

Travel insurance should be at the top of your holiday checklist, not the bottom.

It’s not just world events that can impact your ability to travel, right?

Absolutely, and that’s something people often overlook. Big global events grab headlines, but personal emergencies are also common reasons for cancelling or changing travel plans.

Medical issues, unexpected hospital visits, or a loved one passing away can all happen before you even leave home.

Without insurance sorted early, travellers can be left thousands of dollars out of pocket... even if the issue has nothing to do with a war or disaster.

Life is unpredictable and that’s exactly why insurance exists.

How do you know you’re getting the right coverage?

Start by thinking about your trip, not just the destination. Where are you going? What are you doing? Skiing, cruising, travelling with kids or pre-existing conditions all need specific cover.

Look at things like medical cover limits, cancellation benefits and whether domestic travel disruptions are included.

If you’re unsure, compare policies side-by-side - that’s often when the differences really jump out.

In light of recent changes at Qantas, what do Aussies flying domestically need to be aware of?

The big thing to know is that most travel insurance won’t cover non-refundable deposits or pre-paid accommodation if a flight is cancelled due to airline scheduling changes.

Some policies may offer limited cover, depending on when the insurance was purchased, but these situations are often excluded because they’re unpredictable and difficult for insurers to price.

Cancelled flights are usually handled by the airline, which may offer a refund or rebooking, but that won’t always cover the flow-on costs.

If you bought insurance before recent airline announcements, it’s still worth checking your policy or calling your insurer to check.

If you do want to protect yourself, probably your best option is to delay paying deposits or final balances where you can, until there’s more certainty around travel plans.

How can you ensure you’re getting the best deal? Does cheap travel insurance mean sub-par coverage?

You often don’t have to spend a lot to get great value cover that could save you thousands should you ever need to claim.

Travel insurance really isn’t all that expensive in the grand scheme of your holiday budget - compared to flights and accommodation, which can easily run into the thousands.

But what matters is value for money, not just the headline price.

A bargain policy that excludes cancellation, limits medical cover or has major restrictions can end up costing you far more in the long run.

For example, the free or really cheap cover you can get with credit cards is often extremely limited and that could leave you in the lurch if you ever do need to claim. A standalone policy is often going to be your best bet.

Compare carefully, understand the coverage, and make sure the policy actually protects you when things go wrong..

The ghost of cheap petrol

Remember when petrol cost under a dollar a litre, a pub lunch was $10, and a soft serve from McDonald’s was 30 cents?

These 'price memories' shape what we think we should be charged today. So much so that every tap of the card or phone can feel like a bit of a rip-off. And we can’t help but compare it to what things cost just a few years - or even decades - ago.

The problem is, those “back in my day” prices are now as outdated as the wallet you used to carry cash in.

Here’s what we need to remember about inflation and the fallacy of mental price tags.

Inflation nation
Think of inflation like running a bath:

• Water level = how much things cost (groceries, rent, bills).

• Inflation = how fast the water is rising.

When the Reserve Bank of Australia talks about inflation, they mean the speed at which prices are rising... not the prices themselves. It’s the trend, the momentum, and the direction it’s headed.

If rising inflation isn’t controlled, the tub fills up way too fast and can even overflow. That’s when the economy is really in strife because, like a flooded bathroom, it’s not so easy to clean up.

Now, when inflation is described as “under control” or “has cooled,” it doesn’t mean things are getting any cheaper. In fact, prices are still rising, just at a slower pace.

But that can still feel frustrating. Even when inflation is stable, it rarely brings prices down. Add rising interest rates, which is the RBA’s main tool to turn those bath taps and slow the flow of water, and everyday expenses seem to cost the earth.

$2 eggs and bread

Every time we pay, we can’t help but do a quick mental comparison.

“How can the weekly shop be this much?” we think. “I still remember when a dozen eggs cost $2 and a loaf of bread was about the same!”

We all suffer from price nostalgia to some degree … but those of us who are older, even more so. I still remember when a postage stamp was 5 cents …! The point is, we’re living in two economies at once: the one in our head and the real one.

Money mind games

Another funny thing that happens with price memories is that our brains take a while to play catch-up ... there’s a lag. By the time we accept today’s prices as ‘normal,’ they often go up again and we’re back to feeling shocked.

But it’s not just our perception, of course. The cost-of-living crunch is real, and indeed everything is more expensive nowadays.

But that’s not the fault of everyday Aussies.

Beyond spending

It doesn’t help that while households are doing what they can to curb inflation - cutting back, budgeting, absorbing higher interest rates and rent - much of what’s driving prices is out of our control.

Here’s the truth: the cost of fruit and veg isn’t rising because Australians are suddenly eating better. It’s rising because of poor weather, disrupted growing conditions, and higher transport costs.

And petrol prices didn’t spike because we’re all driving more. They’re tied to global oil markets and, right now, ongoing uncertainty in the Middle East is keeping those prices elevated (for who knows how long).

Wages are often blamed too, but much of the recent growth has been in the Government sector. That adds to inflationary pressure, which in turn puts the RBA in a position where it may need to raise interest rates again.

And when that happens, households feel it immediately. A 0.25 per cent increase can add roughly $100 a month to a $600,000 mortgage. So while we’re told to spend less, the reality is we’re already doing the heavy lifting.

Much of the inflation we’re experiencing isn’t being driven by everyday Australians, but we’re the ones wearing the higher costs. And when we remember the same things costing much less, it’s hard to accept them.

The good news

Understanding how inflation works, and how our price memories can distort reality, can help us budget better and manage expectations when we’re tapping to pay.

Except at the petrol station, that is. I don’t think any of us can quite believe the cost of fuel right now.

So while we remember the prices from yesteryear, and while inflation may rise and fall, one thing feels certain: petrol is never going to be a dollar a litre again.