There are positive signs emerging in 2023 that the inflation surge which has been plaguing most countries around the world is starting to ease, with commodity prices retreating and supply chains returning to pre-pandemic operations. Nonetheless, central banks have been maintaining the fight against inflation with policy rates continuing to be ratcheted upwards, although there are now signs that some countries may be near, or even at, the top of their tightening cycle.
Australian overview
Australia’s economic outlook will weaken as the year progresses.
- The Australian economy finished 2022 on a positive note, albeit slightly lower than what most economists were predicting. Domestic demand was marginally negative in the December quarter 2022, and once the run down of inventories was considered, Gross National Expenditure (GNE) fell 0.5 percent during the final three months of the year. The $6bn swing in net exports during the quarter ($1.3bn from higher exports and $4.7bn from lower imports) helped save GDP growth from recording a negative result.
- From a production perspective Australia’s growth engines during the 2022 were in Professional, scientific and technical services (+$12.3bn higher real Gross Value Added over 2021), Transport, postal and warehousing (+$10.7bn), Healthcare and social assistance (+$7.2bn) and Accommodation and food services (+$6.7bn) – sectors that largely had been materially negatively impacted by the COVID-19 pandemic in their abilities to deliver face-to-face services to clients and customers.
- This upswing in production has brought with it a strong demand for additional workers, and combined with global labour mobility challenges, including the timely access to visas, affordable international airline seat capacity and increased competition from other countries for skilled migrants, Australia has mainly had to rely on its own labour supply for sourcing personnel. The consequence of this has been a decade-low unemployment rate and equally a decade-high participation rate, which has resulted in levels of wages growth not seen since 2012.
- While this tick up in wages growth has been seen positively by policy makers in both fiscal and monetary quarters, the commentary has now moved into one concerned about the emergence of a ‘wage-price’ spiral, further adding to the inflationary woes of Australia. This concern has been evidenced in the dialogue now coming from the RBA which, for the first time KPMG can remember, is splitting the discussion around inflation into “goods inflation” and “services inflation”, recognising that wages play a much more significant role in the cost base of services production than goods production.
Our cash rate profile remains consistent with a ‘Goldilocks’ scenario where wage growth remains contained and the economy slows without entering recession territory.
Global landscape
Inflationary and supply chain pressures have started to ease, with the end of the monetary tightening cycle in sight.
- The first quarter of the year has witnessed some easing of the global supply chain issues, with the global energy prices coming down to the levels seen before the war in Ukraine. Prices of other commodities and global food prices have also declined. Headline inflation has therefore come off its peaks.
- However, inflation has seen a handover from global to domestically generated factors in most economies. Services inflation has remained elevated due to the tightness in labour markets and a continuation of solid demand for services. Rents inflation in most advanced economies has been high, but appears to begin softening in the US.
- The World Trade Monitor shows world trade momentum continued to drop in January 2023. Yet, we expect global trade to improve this year as a result of the normalisation after the Chinese economy’s reopening and a recovery in global growth – though geopolitical tensions are likely to continue adding some pressure to trade flows in the medium term.
- KPMG expects to see positive growth momentum in 2023 following the reopening of the Chinese economy and a relatively strong growth in some emerging markets. The easing in global supply chain issues and shipping costs should ameliorate the inflationary pressures and improve supply capacity for firms.
Global growth is anticipated to be moderate over the next two years and remain below its long-term average, with lesser contribution from the Eurozone and US. Risks remain tilted towards the downside amid volatile financial markets, while the consequences of the historically large public debt and the rapidly tightening monetary policy may not have fully surfaced.
| Dec-22 |
Jun-23 |
Dec-23 |
Jun-24 |
Dec-24 |
Jun-25 | Dec-25 | |
| GDP (real) | 3.7% | 3.1% | 1.4% | 1.2% | 1.1% | 1.8% | 2.3% |
| Inflation* | 7.8% | 6.5% | 4.4% | 3.5% | 3.0% | 3.0% | 2.9% |
| Unemployment rate* | 3.5% | 3.6% | 4.0% | 4.6% | 4.8% | 4.8% | 4.8% |
| AUD/USD* | 0.66 | 0.70 | 0.70 | 0.70 | 0.71 | 0.71 | 0.71 |
*values at end of period
Full details about Australian economic conditions and forecasts can be found in KPMG’s Australia Economic Outlook: Q1 2023
