Below trend growth to continue
We see global economic growth slowing in 2023. For Australia, we continue to see below trend growth over 2023 and 2024 as the impact of the lockdown rebound ends, global growth slows and higher rates and prices begin to weigh domestically.
We see global economic growth slowing to 2.3% in 2023. Excluding the extreme shocks of the global financial crisis and initial COVID-19 wave this would be the weakest rate of growth since 1993, and reflects tighter central bank policy, the energy price shock in Europe and China’s zero-COVID public health measures and property downturn. We have revised our China growth forecasts down and several advanced economies (AEs) are still at a heightened risk of going into recession later this year or in 2023 including the US, Euro-zone and UK. While we expect stronger growth in 2024 – of 2.8% – this would be well below the long run average of 3.4% (from 1980 onwards).
For Australia, the release of the Q2 national accounts has not fundamentally altered our view of the economy going forward. While base effects see a small revision to 2022, we continue to see below trend growth of around 1.75% over 2023 and 2024 as the impact of the lockdown rebound ends, global growth slows and higher rates and prices begin to weigh domestically. That said, higher frequency data suggests that the economy has remained resilient through early Q3. We continue to see the unemployment rate drifting up over the next two years – ending 2024 at around 4.3%. The strength in labour market indicators has seen us revise up our wage growth forecast to 3.2% y/y by end-22 and 3.4% y/y by end-23. We have also increased our near-term inflation outlook, now seeing headline and trimmed mean inflation peak in Q4 at 7.5% and 6.3%, respectively. Our call on the cash rate is unchanged – where we see the RBA lifting the cash rate by a further 25bps at each of the next two meetings, before pausing at 2.85% at the end of the year. Uncertainty remains elevated, with a series of overlapping shocks continuing to play out in the global economy. Domestically, the RBA is seeking to follow a ‘narrow path’ to reducing inflation without a recession but faces a number of challenges including uncertainty around wage growth and inflation expectations. How long consumption growth can hold up under high inflation and rising interest rates is also uncertain and will be a key factor shaping monetary policy over the coming months.
Find out more in NAB’s World on Two Pages (September 2022)
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