June 22, 2023

NAB’s World on Two Pages – June 2023

After relatively robust growth in Q1, global activity looks set to slow in the near term. For Australia, we are seeing increasing signs that activity is slowing sharply after a very strong period of growth in 2022.

Global

After relatively robust growth in Q1, that reflected a rebound in activity in China and stronger than anticipated growth in India (among others), activity looks set to slow in the near term. China’s recovery appears to be stalling, with the anticipated rebound in consumption yet to eventuate, while the tightening in monetary policy (particularly across much of the advanced economies) will negatively impact demand. There remains uncertainty around the future path of central bank policy rates – markets have one further hike for the Fed and ECB priced in – however much will depend on how rapidly inflation retreats. While global inflation has fallen from its peaks of late 2022, at 6.4% yoy in April, it remains well above the targets of major central banks, meaning that rates could be lifted higher still. We forecast the global economy to grow by 2.8% in 2023 before slowing to 2.6% in 2024 and edging up to 3.1% in 2025 – with this outlook below the long run average (of 3.4%).

Australia

We are seeing increasing signs that the activity is slowing sharply after a very strong period of growth in 2022. At the same time, the labour market has remained very tight and inflation remains elevated. We now see the cash rate rising to 4.6% as the RBA seeks to better balance the risks around inflation, and we have slightly revised down our GDP growth forecasts as a result, expecting growth of just 0.5% y/y for 2023 and 0.9% y/y for 2024. We continue to expect unemployment to begin to rise in the second half of the year as the economy slows more materially, with the unemployment rate now forecast to reach 5% by end-2024. With rates moving higher, the risks to growth continue to rise with a recession now a 50/50 bet.

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

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