Global

Global economic data point to a bounce in growth in Q1, with China providing around 40% of this total. This momentum is not expected to last, as the boost from China’s reopening starts to fade and tighter financial conditions impact global activity, leading to softer economic growth going forward. Stress in the US banking sector re-emerged in May, and could persist for some time, contributing to already tightening lending standards. Global inflation has continued to trend lower, but remains well above central bank targets, with core measures proving sticky. While we believe that central bank policy rates are at or near their peak, sustained high inflation could necessitate policy rates continuing to be lifted. We forecast global economic growth to slow to 2.7% in 2023 and 2024, before edging up to 3.2% in 2025 – with this entire outlook falling below the long run average for the global economy (of 3.4%).

Australia

For Australia, we continue to expect growth to be well below trend at 0.7% and 1.2% in 2023 and 2024 respectively – though we have reverted to our previous expected rate call of a peak of around 4.1% and see a material risk that rates reach 4.35%. Consumption dynamics remain the key force at play, with pressures on households from inflation and rates to weigh on growth through H2 2023 and early 2024. This will lead employment growth to slow and unemployment to rise to 4.7% by end-2024, while inflation should moderate to 4% by end 2023 and 3% by end 2024 – though significant uncertainty remains around the inflation outlook with wage growth an important factor. Overall, the pattern of our forecasts is similar to the updated forecasts recently released by both the RBA and Treasury, albeit we are marginally more pessimistic in the near term.

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