What lies ahead in the new year?
The Commonwealth Bank (CommBank) said the Reserve Bank of Australia (RBA) is likely to lower the cash rate by 75 basis points in the first half of 2024 if inflation reaches the RBA’s target of 2%–3% earlier than its forecast.
Stephen Halmarick (pictured), chief economist at the Commonwealth Bank, said chances are high that the Reserve Bank will achieve the “desired narrow path”, or soft landing, in 2024 given the elevated interest rates have the desired effect of slowing the economy without pushing it into recession.
“Looking ahead, 2024 will have more than its fair share of risks and challenges, particularly geopolitical risks as well as the United States presidential election,” said Halmarick. “Despite these obstacles, the Australian economy remains in relatively good shape.”
Hanging in the balance
The CommBank has also forecast that employment growth is likely to remain positive in 2024. However, the unemployment rate has also been forecast to move up by 4.5% by the end of 2024, unless job growth surpasses the increase in the working age population.
The bank also noted the critical need for a slowdown in the rate of migration to increase the supply of new dwellings and help restore the balance in the Australian housing market. It has predicted an increase in dwelling prices of 5% in 2024 to follow the 9.6% growth since the trough in February 2023. Halmarick said the Australian economy is losing pace due to a slowdown in household spending and a slower decrease in the inflation rate compared to that of other nations.
However, he also noted that around mid-2023 the global inflation rate began decelerating and this is expected to continue through 2024. He believes markets will now focus on the balance between returning inflation to 2% and not hurting the job market.
Halmarick expects interest rate cuts from major central banks in 2024, especially the US Federal Reserve and the RBA. “As 2023 draws to a close, markets have shifted to our view that the global monetary policy tightening cycle is at an end, and that 2024 will see interest rate cuts from some of the major central banks, especially the US Federal Reserve and the RBA,” he said.
“CBA is forecasting the annual rate of inflation back at 3% at the end of 2024, well ahead of the RBA’s current forecast and closer to the Commonwealth government’s latest forecast. We also expect the RBA to begin a modest monetary policy easing cycle from September 2024 onwards.”
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