March 25, 2024

Comments from the desk of NAB’s Chief Economist – 25 March 2024

NAB’s Chief Economist, Alan Oster provides his thoughts on the Australian and Global economy.

Our podcast series continues with NAB Chief Economist Alan Oster providing a 10 minute summary of our key forecasts this month. To listen, just click the link below.

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Over the last month we have had lots of new data. That includes the Q4 GDP release, our NAB Business Survey and data notes, the RBA and finally yesterday’s labour force estimates for March. So where are we and where to from here?

To me, the national accounts showed an economy losing momentum with the consumer and the construction sectors struggling. Our February Business Survey was similar in that it suggested overall business conditions were OK, but some areas showed real stress, including very weak forward orders in retail, wholesale and construction. In turn, that showed up in the confidence readings in those same sectors and overall confidence and orders at subpar levels. A combination of forward orders less stocks (often used overseas as an indicator of stress) suggested little new momentum into Q1 of 2024.

Our NAB data notes suggest that after a better January the consumer again struggled in nominal terms. And revenue of Business bank customers continues to be very subdued. Against that our NAB Business Survey suggested that after a struggle in late 2024 retailers increased prices. So, the ride down in inflation will be bumpy even if it continues to track down in year-on-year terms.

On a more positive note, the labour market looks less alarming. After the February numbers, the key message to me is that the kick up in unemployment in the last few months reflected seasonal adjustment problems rather than a rapid deterioration in the labour market. At 3¾%, unemployment has been relatively steady recently (after increasing from around 3½% in mid-2023) but is still likely to deteriorate moderately over the rest of the year.

So where is the RBA at? The markets are saying that this week’s post meeting statement from the RBA was less hawkish. A lot depends on whether you really believe the RBA was seriously thinking of tightening rates in February. Personally, I doubt it. To me, both statements were talking about balanced risks (albeit the latest statement is probably clearer on that). That is, the RBA is still concerned that services inflation is too high (and we won’t get a full read on that till late April) while the RBA is still worried about the consumer and whether unemployment accelerates faster than expected. They have also added concerns about China and geo-political risks. So it is not surprising that the Board is not ruling anything in or out when it comes to the future direction of rates.

So, there are lots of different pressures at present but on our Australian forecasts we essentially have not changed much. As we look at the first half of 2024, we see no reason to expect much improvement from the current very slow growth. Indeed, the risks for the consumer are probably on the downside. That said, for the second half of 2024, we see Government relief to cost of living pressures and the reconfigured Stage 3 tax cuts helping to lift momentum while the RBA may begin to gradually ease rates from November. Overall, we still expect GDP growth of only 1.7% through the year.

That means the economy will not produce enough jobs to keep the unemployment rate from rising to around 4.5% by end 2024. As we have seen, trend employment growth is currently running around 20k per month. To stabilise unemployment the required rate is nearer 40k.

For further details please see, Comments from the Chief Economist (March 2024)

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