The Australian economy has continued to show resilience during 2022 – consumption activity has remained buoyant despite a significant drop off in consumer sentiment.

Australian overview

Inflation has surprised on the upside during the September quarter, with annual headline and core inflation now running at 7.1 percent and 6.0 percent respectively, the highest levels since the early 1980s.

  • Australia’s labour market is arguably operating at levels beyond full capacity with an unemployment rate of 3.4 percent, with the unique situation not seen for decades where there is almost a job available for every person that is looking for one. The tight labour market conditions are helping wages growth to pick up.
  • The latest WPI revealed nominal wages grew by 1.0 percent over the September quarter and 3.1 percent over the year.
  • The new Albanese Government also handed down their first Budget in early October, with Treasurer Chalmers at pains to ensure any new spending initiatives were largely offset by savings measures to ensure fiscal policy was not stoking inflation.
  • The RBA has ratcheted up the cash rate by 300 basis points over eight consecutive months with it now sitting at 3.1 percent. Our expectation is that the RBA will lift the cash rate by 25 bp in the first quarter of 2023.
  • Our cash rate profile is consistent with a ‘Goldilocks’ scenario where wage growth remains contained and the economy slows without entering recession territory. To the extent a wages breakout occurs beyond what we have forecast then the RBA may find itself in the position of needing to push the cash rate higher in order to pull back aggregate demand more aggressively.

At this stage KPMG’s central macroeconomic forecast is for Australia to experience a slowdown in economic activity, but we are not expecting the economy to enter a recession over the forecast period. The risks of higher interest rates and recession have increased in recent months.

Global landscape

The global economic landscape is less positive at the end of 2022 than it was at the beginning of the year. The high degree of optimism that the end of the COVID-19 pandemic was near and the global economy would bounce strongly back after a tough couple of years has now been displaced by high inflation, tightening monetary policy, rising energy costs and sharply declining consumer confidence.

  • The dramatic rise in inflation across many economies and the subsequent response by Central Banks of rapidly raising policy rates has been the impetus for the deterioration of economic conditions.
  • There is a view that global inflation may now have peaked, notwithstanding the energy crisis that was initiated by the Russia/Ukraine conflict and that is still ongoing, but the return to target inflation levels is expected to be slow and protracted, requiring economic activity to be slowed by tighter policy settings.

The pace of policy rate tightening is easing but it is not yet over, and given the lags associated with monetary policy the full effects of the increased interest rates are unlikely to be felt until well into 2023.


  Jun-22 Dec-22 Jun-23 Dec-23 Jun-24 Dec-24 Jun-25
GDP (Real) 3.7% 3.6% 2.8% 1.4% 1.5% 1.8% 2.1%
Inflation* 6.2% 7.8% 6.1% 4.4% 3.4% 2.9% 2.9%
Unemployment %* 3.5% 3.4% 3.8% 4.2% 4.5% 4.5% 4.4%
$A / US$* 0.71 0.69 0.71 0.73 0.73 0.72 0.71

*Value at end of the year
Source :KPMG