This despite hints of a rate pause from RBA
Following the Reserve Bank’s decision to give Australian homeowners a reprieve from rate hikes over the summer holidays, uncertainties linger about the economic landscape in 2024, according to Bendigo and Adelaide Bank’s chief economist.
In his final economic update for the year, Bendigo and Adelaide Bank’s David Robertson (pictured above) highlighted clear signals of an economic slowdown and urged Australians to brace for a challenging period ahead.
“As 2024 approaches with a welcomed pause in RBA rate hikes and clear signs of economic deceleration, there's no doubt we're in for a challenging period ahead,” Robertson said.
RBA’s “no change” decision and economic indicators
Robertson said the recent RBA “no change” policy decision aligns with expectations, maintaining a tightening bias but hinting at a “rates on hold” scenario, potentially throughout 2024.
Despite the current pause, he noted that another hike to 4.6% cannot be ruled out, dependent on forthcoming quarterly CPI data in late January and late April. However, he emphasized that rate cuts would require substantial progress with inflation.
The latest GDP numbers underscored the economy’s quick deceleration, with real GDP rising only 0.2% in the third quarter. Household consumption and savings rates are slowing, and the economy experienced growth last quarter primarily due to sustained public demand and increased capital investment.
“With the November rate hike and the likely easing in population growth next year, the risk of a technical recession is still real,” Robertson said.
Labour market concerns and RBA’s dilemma
While the resilience in labour markets currently shields households from the slowdown aimed at reducing inflationary pressures, Robertson is predicting a steady rise in the unemployment rate next year.
“The updated RBA forecast is for unemployment to only reach 4.2% next year, but as detailed on our business insights website, our forecasts show a sharper rise to above 4.5% by mid-year,” he said.
“Further economic data to be released in coming months is expected to show a similar theme – higher interest rates on top of the cost-of-living crisis slowing the economy down, suggesting further RBA hikes may be unnecessary.”
Robertson said the critical factor for the RBA is the speed at which inflationary risks diminish.
“For the RBA to cut rates, they will need to be convinced the target of 2.5% is both achievable and imminent,” he said. “Goods inflation is likely to be around that target relatively soon, but core services inflation may need all of next year to normalise.”
In summary, the Bendigo Bank economist said 2024 is “likely to be a year where our economy slows further under the weight of higher interest rates, setting the scene for rate cuts early in 2025.” However, the timing of rate cuts is contingent on CPI moderation and core inflation falling below 3%.
To view David Robertson's Economic Update for November, please visit the following link: Bendigo Bank Economic Update with David Robertson | December 2023.
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