KPMG forecasts
- We expect GDP growth to be around mid-1% levels for the remainder of 2024.
- Unemployment will rise slowly but steadily over next two years from 4.2% now to 4.7%. by mid-2026. Wages growth still high but has peaked and will start to soften.
- Inflation will continue downwards from 3.8% now to 2.7% by end of next year.
- Cash rate to stay unchanged in 2024, with a rate cut in Q1 next year.
Dr Brendan Rynne, KPMG Chief Economist, said:
“With 0.1% growth in the March quarter and annual growth of just 1.1% over the previous 12 months, the Australian economy has been “a heartbeat away from a recession” this year, although we expect the Q2 national accounts to be a little stronger. Nonetheless, excluding the pandemic period, this represents the weakest level of growth achieved by the Australian economy for more than two decades.
Households are continuing to struggle with increases in the general cost of living, which can be seen in the fall in the household saving ratio in the first half of 2024. This is due to gross disposable income lagging behind the rise in consumption costs, although prices for goods will start to soften in line with easing domestic demand.
Renters have faced strong rent rises, while those with mortgages have the additional burden of managing higher loan repayments. These factors suggest the headwinds to household consumption will persist in the second half of 2024, as interest rates are now expected to stay higher for longer. Inflation remains sticky, while households draw down on their savings buffers.
The gradual slackening in the labour market will reinforce downwards pressure on household consumption. The RBA will also be very concerned at stagnant levels of productivity growth being outpaced by wages growth, although this is now starting to soften. Services inflation remains high as a consequence of elevated labour costs – despite an easing in labour market conditions.
Some relief to households will come through from July with the onset of the Stage 3 tax cuts and various cost of living relief packages being offered by the Commonwealth and State governments.
How much these fiscal initiatives will flow through to the real economy remains uncertain. However, while many of these packages have been designed to mechanically reduce headline inflation, the RBA has already acknowledged that it will 'look through' the effects of these policies and focus on underlying price pressures still existing in the economy.
Internationally, the global economy has remained resilient, with several central banks now starting to reduce interest rates. When considering interest rates from an inflation-adjusted perspective Australia’s real policy rate is notably lower than those in the US, UK, Canada and Europe, essentially because those markets are further down the disinflation pathway than we are.
However, the current inflation cycle in Australian lagged other advanced countries (by around 6 to 9 months), so it would be expected any policy rate cuts to occur with a similar lag. We can therefore expect a rate cut in the first quarter of 2025."
For further information
Ian Welch
KPMG Communications
0400 818 891
iwelch@kpmg.com.au
