NAB pushes out first rate cuts to May 2025 as “lower for longer” strategy plays out
Insight
December 16, 2022
NAB’s World on Two Pages – December 2022
Global business surveys continue to point to a weakening global economy, likely reflecting monetary policy tightening, the energy supply shock as well as COVID-19 related disruptions in China. For Australia, the recent national accounts data showed that the economy remained resilient in Q3 and labour force data continue to reflect a healthy but tight labour market.
Global
Global business surveys continue to point to a weakening global economy, likely reflecting monetary policy tightening, the energy supply shock as well as COVID-19 related disruptions in China. With inflation still elevated, central banks have continued to tighten monetary policy and further increases into 2023 are likely. China has started to relax its zero-COVID health policies, which could provide a boost once it is through a volatile transition period. We expect growth to be much lower in 2023, at 2.3%, with only a modest rebound in 2024 to 2.8%, both low growth rates by historical standards.
Australia
For Australia, our forecasts are largely unchanged. The Q3 national accounts data showed that the economy remained resilient in Q3 and labour force data continue to reflect a healthy but tight labour market. That said, leading indicators of labour demand have eased slightly and more timely consumer spending data suggest consumption growth has slowed. Growth is expected to slow in Q4, and we continue to see growth in annual terms of below 1% in 2023 and 2024. Slower growth in labour demand will see the unemployment rate drift up to around 4.5% over the next two years. We see inflation peaking in Q4 before easing over the forecasts – but remaining higher than the RBA’s 2-3% target for the next two years. Our rate call is unchanged – with a further two 25bp increases to come at the February and March meetings, taking the cash rate to a peak of 3.6%. The Q3 accounts showed that the household savings rate has broadly normalised in Australia with nominal consumption growth outpacing disposable income growth in the quarter. Higher interest rates will weigh further on disposable income as we enter 2023 but how households react remains highly uncertain. Throughout the pandemic, households have amassed a large 250bn of excess savings, but the international experience on how households run down saving amidst strong inflation and higher interest rates is mixed.
Find out more in NAB’s World on Two Pages (December 2022)
