The Commonwealth Bank of Australia (CBA) believes the RBA’s efforts will slow the economy without pushing it into recession next year.
“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,” says CBA Chief Economist Stephen Halmarick.
“Despite these obstacles, the Australian economy remains in relatively good shape.”
- The RBA will lower the cash rate by 75bp in H2 2024, starting in September, and a further 75bp in H2 25, as inflation comes back into the RBA’s 2-3% target range, slightly earlier than the RBA forecasts itself.
- Employment growth is expected to remain positive in 2024, but CBA sees the unemployment rate moving up to 4.5% by the end of next year. Importantly, says the bank, no one need lose their job for the unemployment rate to rise – all that’s required is for job growth to be slower than the increase in the working age population.
- A slowdown in net migration – as well as consistent and coordinated measures to increase the supply of new dwellings – will be “critical” to restoring some balance to the Australian housing market.
- Dwelling prices are expected to rise by a further 5% in 2024, following 9.6% growth since the trough in February 2023.
Mr Halmarick says while the Australian economy is losing momentum, led by a slowdown in household spending, inflation was also decelerating – albeit at a slower pace than other nations.
“The good news is that the pace of global inflation clearly begun decelerating around mid-2023 and we expect further deceleration in 2024, however markets will also focus on the balance between returning inflation to 2% targets, without doing too much damage to labour markets,” he says.
“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.
“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.”
A sustainable future
Heading into 2024, Mr Halmarick says climate change will prove “pivotal” to the outlook.
“Global capital will need to continue to flow into markets and industries that can help the world move towards the net zero carbon target,” he says.