Below trend growth to continue
Global inflation was higher in July, although this uptick was not broad based – concentrated in a few key emerging markets. For Australia, our forecasts for GDP growth have strengthened marginally, reflecting a slightly stronger than expected result for Q2.
Global inflation was higher in July, although this uptick was not broad based – concentrated in a few key emerging markets. Importantly, inflation in advanced economies continued to trend lower, increasing the likelihood that the tightening cycle of most major central banks has come to an end (following the ECB’s hike in mid-September). That said, the recent upturn in energy prices presents a risk. Energy prices have been trending higher since the end of June, in part reflecting the efforts of OPEC+ to put a floor under oil prices and drive them higher. If energy prices cause the slowing inflation trend to falter, then central banks could lift rates further – reflecting that they still have a tightening bias. Our outlook for the global economy remains comparatively weak – with growth of 3.0% in 2023 (revised slightly higher this month on a stronger forecast for India), before slowing to 2.6% in 2024 and a modest recovery to 3.1% in 2025 – with growth over this period remaining below the long-term average of 3.4%.
For Australia, our forecasts for GDP growth have strengthened marginally, reflecting a slightly stronger than expected result for Q2, an upward revision for Q1 and small improvement to our outlook for Q3. Nonetheless, we continue to expect growth to be well below trend at 1.1% over 2023 and 1.4% in 2024, weighed down primarily by sluggish growth in household spending as inflation and monetary policy weigh on households. The unemployment rate is expected to edge higher over Q4 to 3.9% before increasing to around 4.9% by the end of 2024. We also see inflation moderating to 4.4% by end 2023 and 3.1% by end 2024. On rates, we continue to pencil in one last hike in November before the RBA remains on hold until mid-next year.
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