The macro calls that could define the next decade of investing

Please note, this interview was recorded Monday 13 July 2026

Anyone trying to make sense of today's investment landscape is confronted by no shortage of competing narratives. 

Inflation is either stubborn or beaten. Interest rates are either heading higher for longer or on the cusp of being cut. Artificial intelligence is either the biggest investment opportunity in a generation or the next great bubble. Layer on geopolitical tensions, questions about Australia's economic competitiveness, and an increasingly uncertain policy backdrop, and it becomes clear why investors are struggling to separate the signal from the noise.

That won't stop us all from trying, however. That being the case, I thought I'd better bring in the heavy artillery - Tim Toohey, Chief Economist at Yarra Capital Management, and Scott Haslem, Chief Investment Officer at LGT Wealth Management. 

While the pair occasionally approached the issues from different angles, there was remarkable alignment on the broad direction of travel. Both see Australia's economy slowing over the year ahead. Both believe AI will reshape productivity in profound ways. And both think investors should spend less time reacting to headlines and more time thinking about the structural forces that will shape markets over the next decade.

For Toohey, one of the biggest surprises may still lie ahead when it comes to inflation;

"I actually think people will be somewhat surprised by how fast it comes down."

His view is that inflation may retreat much faster than markets currently expect, paving the way for a very different interest-rate outlook.

Haslem, meanwhile, argues investors need to look beyond the inflation debate altogether and focus on the productivity gains AI could unleash.

"Things that boost productivity should boost real growth and boost the neutral rate of interest."

Together, those views paint a fascinating picture of the investment landscape: one where short-term macro fears may be overstated, but the longer-term consequences of productivity, policy and portfolio construction deserve far more attention than they currently receive.

INTERVIEW SUMMARY

Australia's slowdown is real, but inflation may not be

While Australia's economy has clearly lost momentum, Toohey challenged the prevailing narrative that inflation remains the dominant risk. Instead, he argued the economy has been weakening for longer than many appreciate, with tighter financial conditions, softer capacity utilisation and a rising unemployment rate all pointing towards slower growth.

"We think growth is actually going to slow back down to that 1% rate again. So it's really a story of an upward trend of the unemployment rate, weaker growth, and we think ultimately the inflation data does come down."

Toohey believes markets have been too willing to accept the Reserve Bank's assessment that the economy has been operating beyond capacity, suggesting the data paints a different picture.

"I just think markets could probably be a little bit more attuned to what the data is telling us rather than necessarily just taking hook, line and sinker what the central bank is telling them."

That view underpins Yarra's expectation that the RBA is now effectively at the end of its tightening cycle, with gradual rate cuts becoming more likely during early 2027.

Haslem broadly agreed that inflation should eventually moderate, but cautioned investors against assuming the journey will be smooth. Elevated government spending, solid wage growth and weak productivity could keep inflation sticky over the coming months before the broader disinflation trend takes hold.

Australia's competitiveness is becoming a bigger concern

Beyond the cyclical outlook, both investors expressed concern about Australia's longer-term growth prospects, albeit from slightly different perspectives.

Haslem argued Australia's biggest challenge isn't simply inflation or interest rates, but productivity. Without stronger productivity growth, the country's living standards and investment appeal risk deteriorating.

"If we can't grow and can't innovate and can't generate the productivity that we're seeing in other places, then Australia as a place to invest becomes less attractive than it was."

He also questioned whether recent policy settings have made Australia more attractive for capital, suggesting the expanding role of government risks crowding out private investment and innovation.

Toohey agreed that elements of the Federal Budget could have unintended long-term consequences. While supportive of some reforms, he expressed concern that changes to capital gains tax and investment incentives may discourage the patient capital needed to fund growing businesses.

"We do need growth capital and we need stable capital. That's what economies have really formed around. And this attacks both a little bit at the margin."

He also warned that housing policy could have meaningful cyclical consequences if falling house prices weigh on confidence and consumer spending over the next year.

The United States still holds the advantage, but AI is changing the investment landscape

Although Australia's outlook appears increasingly challenged, neither guest suggested investors should write it off entirely. Instead, both pointed to the strength of the United States and the productivity gains being generated by artificial intelligence as key drivers of global markets.

Toohey believes AI can simultaneously be both a genuine technological revolution and a source of speculative excess.

"I actually don't think it's an either-or question. I think it can be both of those things."

He argued the enormous capital expenditure currently flowing into AI infrastructure is unlikely to generate equal returns across every company involved, warning that the semiconductor and hyperscaler boom will eventually peak. At the same time, he remains convinced the underlying technology will deliver meaningful productivity gains across the broader economy.

Haslem shares that optimism around AI's economic impact, arguing stronger productivity should ultimately support faster real growth.

"I would certainly be in the camp that says AI leads to lower inflation. I think it should, but it also boosts productivity. If you boost productivity, then you boost real growth."

The pair also found common ground on the new Federal Reserve Chair, arguing markets may have overstated his hawkish credentials and underestimated the likelihood that policy ultimately becomes more data dependent.

How they are positioning portfolios

Despite their differing macro lenses, the portfolio implications were remarkably similar.

Toohey expects slowing growth and moderating inflation to support government bonds over the medium term, while remaining cautious on Australian financials until the domestic economy stabilises. Instead, he favours more defensive sectors alongside exposure to interest-rate sensitive assets if the easing cycle eventually unfolds as expected.

Haslem also continues to favour Australian government bonds, believing investors are underestimating the extent of the domestic slowdown.

Equities remain overweight globally, with the United States continuing to offer the strongest combination of innovation, earnings growth and policy support. Within Australia, however, LGT Crestone remains underweight the broader sharemarket, preferring selective exposure to healthcare and commodities while seeing Australian equities as a useful portfolio diversifier given their relatively limited exposure to the AI investment boom.

Importantly, Haslem believes investors are entering a period where asset allocation will matter more than heroic security selection.

"I think you're going to win more in being diversified across the asset class in the current environment than necessarily being able to pick a particular asset class."

Focus on the long game

Asked what investors should pay less attention to, Haslem delivered a simple message.

"I think we should stop worrying about volatility. It's with us, it's going to be with us for a while."

Instead, he urged investors to think more broadly about diversification, including private markets and assets capable of providing inflation protection outside traditional equities and bonds.

Toohey's attention was directed elsewhere. While political headlines are likely to dominate until the US midterm elections, he believes investors should spend far more time thinking about the resilience of the financial system itself, with respect to AI models. 

"I think we need to worry a lot more about things like Mythos and that ilk of models that are hitting at the moment. I think we do need to think a lot more about the financial infrastructure and the security of it."

Taken together, the discussion painted a nuanced picture of the year ahead and beyond. Growth is likely to slow, inflation may retreat faster than many expect, and AI should continue reshaping the global economy. 

But perhaps the biggest message was that investors should resist becoming fixated on any single narrative. In a world where macro conditions are evolving rapidly, thoughtful diversification, disciplined asset allocation and a willingness to challenge consensus views may prove to be the most valuable investments of all.