There is a sense that global and domestic economies are seeing a light at the end of the tunnel regarding the current period of price instability and low growth. With inflation now largely under control in most countries; the current discussion on interest rates is when and how fast they will start to come down.

Australian overview

The domestic economy is in the middle of an inflation-induced downturn, but the worst of it is expected to pass shortly and a recovery likely in H2 2024.

  • The September quarter GDP figure of 0.2 percent growth – down from 0.4 percent in the June quarter – was weaker than expected and confirms the impact of the interest rate rises over the past year in slowing the economy.
  • Domestic demand lifted slightly during the third quarter, but this was mostly propped up by public sector spending and investment. Household consumption remained flat, while private sector investment activity was weak but at least positive, driven primarily from the recovery in non-dwelling construction activity.
  • The increase in migration would continue to help address some of the tightness in the labour market. As a result, we expect the unemployment rate to gradually rise from its current low levels to reach the natural rate of unemployment by mid-2024.

Global landscape

Headline inflation has peaked across most advanced economies, but persistent core inflation has continued to cause headaches for monetary policymakers.

  • Since mid to late 2022, headline inflation has dropped steadily in most advanced economies, mainly driven by falling energy and food prices and the easing of supply chain disruptions. The rapid monetary policy tightening cycle has also been playing a role in disinflation by taking some heat off the demand side.
  • Fiscal policies are also anticipated to be tightened in advanced economies as higher interest rates have made the costs of servicing debt expensive.
  • There has been a noticeable change in trade patterns, including a smaller proportion of intermediate goods being traded, and fewer intermediate goods being sourced from Asia. A continued rise in geopolitical tensions and a drive towards reshoring production for essential goods are key reasons for this trade fragmentation.

Summary forecast

*values at end of period

Full details about the Australian economic conditions and forecasts can be found in KPMG's Australian Economic and Outlook: Q4 2023.

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