Global

Global inflation again picked up in August. A key contributor to recent inflation trends has been energy prices, with oil prices increasing since June. Market expectations around central bank policy rates have shifted, with rates generally expected to stay at around current levels for longer in the major advanced economies (AEs). This has contributed to a tightening in financial conditions with equity markets weakening since mid-September and bond yields moving higher. Growth across the major AEs appears to have diverged significantly in Q3 2023, with it set to be strong in the US but weak (if not negative) elsewhere, while for EMs the softening evident in business surveys since May continued into September. Our forecasts for global growth are little changed this month and we continue to expect sub-par growth, by historical standards, out to 2025.

Australia

For Australia, our forecasts are unchanged. Recent data all point to continued resilience but the ongoing pass through of higher rates and high inflation still suggest consumption growth will soften in H2 2023. As such, we continue to expect below trend GDP growth of 1-1.5% in 2023 and 2024. The labour market remains very tight with the unemployment rate edging back down to 3.6% in September, but we continue to expect a gradual easing over time, to be approaching 5% by late 2024. On inflation, we expect to see a 1.1% q/q increase in Q3 CPI for both the headline and trimmed mean measures and, given the RBA’s limited tolerance for a slower-than-expected return to target, continue to expect this to push the RBA Board to one further rate rise at the November meeting. Further out, inflation should continue to moderate but domestic factors including wages will be a central focus. We see rates beginning to move back towards neutral from mid-2024.

Find out more in World on two pages (October 2023)