Below trend growth to continue
We now forecast the global economy to expand by 3.0% in 2022 before slowing to 2.5% in 2023. For Australia, we have pulled back our near-term growth forecasts, with high frequency data showing a slowing in consumption growth. Following growth of 2.2% during 2022, we continue to see below-trend growth of 1.6% through 2023 and 1.8% through 2024.
We now forecast the global economy to expand by 3.0% in 2022 (down from 3.2% previously) before slowing to 2.5% in 2023 (was 2.9%). Several advanced economies are at heightened risk of recession. Tighter financial conditions and the fallout from the Ukraine-Russia conflict (including for European energy supply) are impacting activity in advanced economies. This will in turn put pressure on emerging market economies via financial market, currency and trade channels. It remains too early to suggest that inflationary pressures have subsided with global consumer price growth accelerating through to June, although recent commodity price falls, if sustained, should provide some relief.
For Australia, we have pulled back our near-term growth forecasts with high frequency data showing a slowing in consumption growth. Following growth of 2.2% during 2022, we continue to see below-trend growth of 1.6% through 2023 and 1.8% through 2024. With GDP growth slowing we continue to see the unemployment rate drifting up over the next two years – ending 2024 at around 4.3%. The Q2 CPI was in line with our expectations and our forecasts for inflation are unchanged. We continue to see headline inflation peaking at around 7.5% in Q4 and underlying at around 5.5% before easing back to around 3% by end 2023. Following the 50bp increase in the cash rate to 1.85% in August, we expect another 50bps increase in September and 25bp increases at each of the October and November meetings taking the target cash rate to 2.85% where we expect the RBA will pause as growth slows and inflation begins to moderate in 2023. Globally, uncertainty remains high with a series of very large shocks continuing to play out. Global growth remains a key risk with higher inflation likely to weigh on real incomes while global banks also tighten monetary policy at a rapid pace. For Australia, inflation itself remains a key risk. While some indicators are starting to point to an easing inflationary pressure, official measures are yet to have conclusively peaked and ongoing passthrough to domestic prices may continue.
Find out more in NAB’s World on Two Pages (August 2022)
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