Overview

• Following the release of the Q2 national accounts, we have slightly upgraded our growth forecasts, seeing GDP growth of 1.1% over 2023 and 1.4% in 2024. The upgrade largely reflects the slightly stronger than expected result for Q2 and an upward revision to Q1, as well as a small improvement to our outlook for Q3.
• At ~1%-1½%, our expectation remains that growth will be well below trend over the next two years, weighed down primarily by sluggish growth in household spending as inflation and monetary policy weigh on households.
• Elsewhere, we expect dwelling investment to remain weak, though the strength in housing demand and higher prices will provide some support. On the business side, outcomes will likely be more mixed with the end of the instant asset write off to weigh but a large pipeline of buildings & structures work underway. Public sector spending on infrastructure is also likely to remain a key
  support.
• The themes of households adjusting to higher rates and inflation but strong population growth supporting aggregate outcomes remains central to the outlook. For now, our transactions data points to resilience in nominal spending for the first two months of Q3 and business conditions remain above average, with capacity utilisation still high.
• Our outlook for the labour market is also unchanged. The rebound in population growth – running at 0.7% per quarter – has eased some labour shortages but the unemployment rate remains very low. We see the unemployment edging higher over Q4 to 3.9% before increasing to around 4.9% by the end of 2024.
• Inflation is expected to moderate to 4.4% by end-2023 and 3.1% by end-2024. In the near term, Q3 will likely see an acceleration with wage pressure, energy and services prices offsetting ongoing disinflation in goods prices.
• On rates, we continue to pencil in one last hike in November before the RBA remains on hold until midnext year. That said, with rates peaking well below most other countries, the risk remains that the RBA stays on hold for even longer.

For further details, please see The Forward View Australia – September 2023