Global

Banking stress in the US and Europe has been contained and financial markets have calmed, although there is still likely to be fallout with lending standards expected to tighten further. This has contributed to a pull-back in expectations of central bank rate rises; while some further increases are expected, we are nearing the peak of the global tightening cycle. Whether this ends up being the case, and how long rates are kept at elevated levels, will depend on the path of inflation, with core inflation proving to be sticky. Global GDP growth looks to have bounced higher in Q1 2023, largely because of China’s abandonment of zero-COVID. However, China will not be able to sustain growth at its Q1 pace, and with the impact of tighter policy settings (including fiscal) still working its way through, global growth over the rest of 2023 is likely to be more subdued. We anticipate that annual average global growth will step down in 2023 and 2024 – to around 2.7%, weak rates of growth by historical standards.

Australia

For Australia, there are signs that consumption is plateauing ahead of a likely slowdown later in the year. We continue to see well below trend GDP growth of around 0.7% y/y over 2023 as higher rates increasingly weigh on household budgets. The RBA paused its rate-rise cycle in April and given the slowing data, we now see the current 3.6% cash rate as the likely peak (down from 4.1%) – though a further rise remains very possible. With rates assumed to peak 50bps lower, we have somewhat revised up our expectations for GDP growth in 2024 – though at 1.3% y/y this remains below trend. We continue to see a gradual pickup in the unemployment rate as population rebounds and activity slows, to 4.7% by end-2024, alongside easing inflation. The competing forces of higher rates and population growth are also affecting the housing market, and we now expect more modest price falls totalling 4% across 2023 (previously -11%). However, there remains considerable uncertainty as to how the market will adjust. More broadly, the strength of consumer spending, wage growth, and the global economy remain key risks.

Find out more in NAB’s World on Two Pages (April 2024)