Australian economy
As expected, the RBA kept interest rates steady at 4.35 per cent in its meeting on 6 February. This comes off the back of easing inflation which fell by 0.6 per cent to 4.1 per cent in the December quarter and some easing in labour market conditions.
In its forecasts, the RBA sees headline inflation tracking down to 3.1 per cent in June 2025 and 2.8 per cent in December 2025. This suggests that RBA sees inflation moderating slowly, giving rise to some caution with the Board noting that “…. the economic outlook is uncertain and the Board remains highly attentive to inflation risks.” Like other central banks, the RBA wants to see that Australian is on a sustained path to the target band for inflation before easing monetary policy. Expectations are now that the RBA will hold interest rates steady for some time and then move to ease interest rates later this year and into 2025.
The unemployment rate remained at 3.9 per cent (573,600) (sa) in December 2023 with employment falling by 65,100 (sa) and total employment now stands at 14,201,100. This was the largest monthly drop in employment since 1993. The participation rate fell to 66.8 per cent. There were 389,000 job vacancies in November 2023, down 3,000 from August, according to latest ABS survey of job vacancies. The ABS noted that this is the sixth consecutive fall in job vacancies. While job vacancies are 18 per cent lower that the peak in May 2022, they remain well above the pre-pandemic level being 71 per cent higher than February 2020.
The unemployment rate remained at 3.9 per cent (573,600) (sa) in December 2023 with employment falling by 65,100 (sa) and total employment now stands at 14,201,100. This was the largest monthly drop in employment since 1993. The participation rate fell to 66.8 per cent. There were 389,000 job vacancies in November 2023, down 3,000 from August, according to latest ABS survey of job vacancies. The ABS noted that this is the sixth consecutive fall in job vacancies. While job vacancies are 18 per cent lower that the peak in May 2022, they remain well above the pre-pandemic level being 71 per cent higher than February 2020.
The Swift effect
Taylor Swift commences the Australian leg of the Eras tour in mid-February. So far, the Eras tour has proved to an economic phenomenon as much as a pop culture sensation. Reports suggest that the total economic impact of the US leg of the tour generated around USD5 billion in economic value. It is expected there will be similar outcomes here with The Australian reporting that fans have bought 620,000 tickets, Qantas has added 11,000 seats and one hotel alone has ordered 2000 bottles of champagne. So, it looks like at least some people are looking at the economic gloom and saying, “Shake it Off”.
International economy
The International Monetary Fund (IMF) World Economic Outlook (WEO) projects that global growth of 3.1 per cent in 2024 and 3.2 per cent in 2025, an upgrade in their forecasts in the October 2023 WEO. The OECD is projecting broadly similar outcomes with global growth of 2.9 per cent in 2024 and 3.0 per cent in 2025. The greater than expected resilience of many economies, notably the US, and greater levels of fiscal support in China have driven the upgrade. While the outlook is improving the forecast growth rates remain below the 2000-19 (including the GFC) average of 3.8 per cent. The relative underperformance of growth is not surprising given the serial nature of the shocks the global economy has weathered through the pandemic, the Russian invasion of Ukraine, the associated energy price shocks, escalations in conflict in the middle east and central bank actions to curtail inflationary pressures.
Global inflation is trending down with the IMF forecasting inflation to fall from 6.8 per cent in 2023 to 5.8 per cent in 2024 and 4.4 per cent in 2025. Advanced economies are forecast to see faster disinflation with inflation forecast to fall to 2.6 per cent in 2024. The IMF points to the lagged flow-through effect of monetary tightening, improved supply chain conditions and falls in commodity prices as contributing to disinflation. The IMF expects annual average oil prices to fall by about 2.3 percent in 2024, whereas nonfuel commodity prices are expected to fall by 0.9 percent.
The IMF, along with many other commentators, is now seeing the potential of a hard landing receding with a more balanced picture of the global economy. The IMF notes artificial intelligence (AI) as a possible upside which could boost productivity and incomes, particularly in advanced economies where employment is more focused on cognitive-intensive roles.
The US Federal Reserve, the European Central Bank and the Bank of England have all held official interest rates steady at their meetings in January. Each of the central banks note that inflation is tracking down towards their respective targets, however interest rate cuts will not occur in the immediate future with the need to see greater sustainability in the reduction of inflation. The OECD Secretary-General has also echoed these sentiments noting that “Monetary policy needs to remain prudent, though central banks could start to lower interest rates this year, provided that inflation continues to ease.” Markets has consequentially eased their expectations of the speed of monetary easing this year.
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Wayne Calder
Director Economics
0424 852 384
[email protected]