Global

China was the first of the major economies to report Q2 GDP, foreshadowing a slowdown in global growth that likely included India and Latin America. Although global inflation has continued to ease, it has done so gradually, remaining well above the targets of most major central banks in May – although US CPI provided a positive surprise in June, coming in around the Fed’s target level. Further rate increases are likely – primarily in advanced economies – and the tightening in monetary policy will continue to weigh on demand this year and into 2024. There remains uncertainty both around how high policy rates will be lifted, and how long they will remain at these levels. In contrast, some emerging markets are preparing to loosen their policy. Our forecasts for the global economy are largely unchanged this month – with an upward revision to US growth offset by a downgrade to China. We expect growth of around 2.8% in 2023 before slowing to 2.7% in 2024 and edging up to 3.1% in 2025 – with this outlook below the long run average (of 3.4%).

Australia

For Australia, we continue to expect quarterly GDP growth to be flat over the next three quarters, with growth of just 0.5% over 2023 and 0.9% in 2024 as the impact of rate rises flows through. The labour market is also expected to weaken through the second half, with the unemployment rate rising from the current 50-year low of 3.5% to reach 5% by end-2024. On inflation, we have nudged up our expectations for the trimmed mean with quarterly prints likely to be around 1.1% in both Q2 and Q3. We see this profile pushing the RBA to raise the cash rate as high as 4.6% over coming months, although there is a chance they remain on hold at 4.1% through August. The housing market has remained resilient despite rising rates, and we have raised our dwelling price forecast, now seeing a 4.5% increase over 2023 as a whole – though building approvals have weakened. Uncertainty remains elevated, particularly around the outlook for consumption as well as wage growth and the pace of goods disinflation.

Find out more in NAB’s World on two pages (July 2023)