Global

A range of global indicators point to a more positive start to 2023 than we had previously anticipated, leading to an upward revision to our forecasts. That said, the strength of this improvement should not be overstated – we expect the global economy to grow by just 2.6% in 2023 which, outside the Global Financial Crisis and COVID-19, would represent the weakest rate of growth since 2001. Although inflation has slowed in recent months, it remains well above target, and was “sticky” in some countries in January, meaning there remains scope for further policy rate hikes. In addition, a range of risk factors, including geo-political tensions, present uncertainty.

Australia

The economy has remained resilient but we see growth slowing sharply later in 2023 and into 2024. We expect a Q4 GDP print of around 0.9% supported by strong net exports and still rising consumption, and our internal data and business surveys suggest consumption remained resilient into January. The labour market also remains very tight with the uptick in the unemployment rate to 3.7% in January partly a seasonality issue. Inflation likely peaked in Q4 but wage growth has strengthened and should reach 4% this year, so domestic inflation pressures will continue to build, even as global pressures ease. Reflecting these factors and more hawkish outlook from the RBA, we recently revised up our outlook for the cash rate in the near-term – now expecting a peak of 4.1% in May 2023. We expect consumption to fall slightly from Q3 this year as high inflation and rising interest rates continue to weigh on households, with growth slowing to just 0.7% in 2023 and 0.9% in 2024 and the unemployment rate rising to 4.7% by end-2024. Importantly, considerable uncertainty remains about the timing of the pass through from higher rates to household consumption, as well as how savings behaviour will adjust, as well as the global outlook for growth and inflation pressures.

Find out more in NAB’s World on Two Pages (February 2023)