Below trend growth to continue
Hopes have been raised of a soft landing for the global economy, although a number of headwinds remain. For Australia, our forecasts for GDP growth have strengthened marginally but we continue to expect growth to be well below trend in 2023 and 2024 as the impact of rate rises flows through.
With inflation continuing to ease, growth generally being stronger than expected, and market pricing suggesting that most major central banks are close to the peak of their tightening cycle, hopes have been raised of a soft landing for the global economy. That said, there remain a number of headwinds, including the ongoing impact of past monetary policy tightening, and the loss of momentum in China. We continue to forecast a relatively weak outlook for the global economy – growth of 2.9% in 2023, before slowing to 2.6% in 2024 and a modest recovery to 3.1% in 2025 – with this outlook well below the long-term trend of 3.4%.
For Australia, our forecasts for GDP growth have strengthened marginally, reflecting stronger Q2 exports, but we continue to expect growth to be well below trend at 0.7% in 2023 and 0.9% in 2024 as the impact of rate rises flows through. As the economy slows, softening labour demand should see the unemployment rate rise back to 4% by end-2023 and around 5% by end-2024. Inflation moderated more than expected in Q2, falling to 6% y/y in Q2. We now see only one more rise in the cash rate, taking the peak to 4.35% most likely in November, but cuts are unlikely until August 2024 with the cash rate returning to around 3% by early 2025. House prices and rents have continued to rise strongly though vacancy rates have started to edge back up. Building activity is still set to ease further although approvals have started to stabilise after falling early in the year.
Find out more in NAB’s World on two pages (August 2023)
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