Global

Global central banks find themselves caught between competing forces – persistent high inflation and banking sector instability in both the United States and Europe. There has been some improvement in advanced economy business surveys early in 2023, and we have revised up our expectations for US Q1 GDP growth, highlighting the resilience of advanced economy economies to-date. At the same time, a boost to the global economy is evident from China’s abandonment of its zero-COVID policies. We have been expecting growth to slow materially this year, and the banking developments reinforce this view, even though we assume authorities will be able to contain the problem and that the level of stress will subside from here. Our global forecasts are little changed; we still only expect global growth of 2.6%, while we have marked down slightly our expectation for growth in 2024 to 2.7%; these rates of growth are well below the historical average.

Australia

Our outlook for the Australian economy is broadly unchanged. The Q4 national accounts showed GDP rose by a healthy 2.7% over 2022 and that prices pressures remain elevated and broad. We expect growth to slow sharply to 0.7% y/y in 2023 and 0.9% in 2024. Two years of well-below trend growth will see a slowing in labour demand growth which will see the unemployment rate rise to 4% by end 2023 and 4.7% by end 2024. A very tight labour market has seen an acceleration in wage growth over the past year or so, and we expect growth in the hourly Wage Price Index to peak at around 4% before easing as some of the tightness in the labour market fades. Inflation is expected to moderate over the next two years – but only reach the top of the RBA’s target band by late 2024. Domestic factors – including wage growth – will be increasingly important for where inflation settles as global pressure eases. For now, while having strengthened, wage growth does not appear inconsistent with “at target inflation”. Our rate view is unchanged, and we still expect 25bp increases at each at the April and May meetings, to a peak of 4.1% – where we expect the cash rate to stay until early 2024.

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