Overview

• With few major data releases in the past month our forecasts remain largely unchanged, with subdued growth still the order of the day. Overall, we continue to expect GDP growth of 1.7% for 2024, improving to around a trend rate of 2¼ % in 2025 and 2026.
• That said, the underlying strength of the labour market and the pace of easing in inflation are both in focus with key data releases due in the coming weeks ahead of the May RBA Board meeting (where we expect rates to remain on hold) and the Federal Budget.
• On the labour market, a very strong February print (in part reflecting changing seasonality) saw the unemployment rate fall to 3.7%, suggesting the rise in the unemployment rate in late 2023/early 2024 may have been overstated. The March data will be closely watched for confirmation of the underlying strength of employment growth. For now, we still expect the unemployment rate to rise over the course of this year, to around 4½% by end-2024.
• On inflation, we expect the Q1 CPI to show a slight pickup in underlying inflation on a quarterly basis, to 0.9%, though the year-ended number will continue to ease to 3.8%. Rents, insurance and other services remain key drivers and while this will not be out of line with the RBA’s forecasts, more improvement will be needed before a first rate cut, which we continue to expect in November this year.
• Housing also remains a major focus. We expect little progress in easing the supply/demand imbalance with ongoing weakness in new supply despite some easing in population growth. That is expected to continue to support both rents and price growth generally, and present challenges for the cost of living as well as the housing-related components of the CPI.
• Global events are also a feature impacting the outlook for Australia. In addition to geopolitical risks, US inflation reaccelerated over recent months and the labour market remains strong. We now expect the Fed to begin cutting rates from September (previously June). This is likely to extend the period of USD strength, and we have pushed back the timing of an expected appreciation in the Aussie to Q3. Elsewhere, China’s subdued growth outlook has seen iron ore prices decline.

For further details, please see The Forward View Australia (April 2024)