October 17, 2023
The Forward View – Australia: October 2023
Growth to remain subdued, but avoid a major downturn
Our podcast series continues with the NAB Forward View – Australia, giving you a 10 minute summary of our key forecasts this month. To listen, just click the link below.
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- Our forecasts are unchanged this month with official data, the NAB business survey and our internal transactions data all pointing to ongoing resilience in aggregate.
- That said, with the ongoing pass through of higher rates and inflation still high we see consumption growth remaining soft in H2 2023 and expect below trend GDP growth of 1-1.5% in 2023 and 2024.
- We continue to expect the unemployment rate to rise to around 4.9% through 2024 with slower labour demand growth unable to absorb the full impact of high population growth. However, forward-looking indicators of the labour market remain healthy. More broadly, despite the slowing in growth to date, the labour market has remained resilient.
- The Q3 CPI released next week will provide a key marker of the ongoing moderation in inflation. In quarterly terms, we see a 1.1% increase in the quarter for both the headline and trimmed mean measures. While this would mark a small reversal in the trend easing in quarterly terms, year-ended inflation will continue to moderate.
- For monetary policy the pace of this ongoing moderation in inflation remains crucial. The improvement in the year-ended rate will be driven partly by base effects as large outturns in Q3 and Q4 of 2022 fade. The moderation from 4% to 3% will be more difficult. Domestic factors will continue to grow in importance as global factors continue to fade (although the war in the Middle East highlights that geopolitical and other risks can materialise rapidly).
- For now, domestically wage growth has not accelerated to a pace inconsistent with inflation returning to target and expectations in the medium- and long-term remain anchored.
- The depreciation in the exchange rate over recent months presents some upside risk though typically exchange rate passthrough is gradual and global price inflation is easing. How firms pricing decisions respond to slower consumer demand will also be important.
- In terms of housing, prices continue to rise and, as explored in this month’s theme, this has continued to challenge affordability.
For further details, please see The Forward View Australia (October 2023)