- Economic growth and inflation slowed faster than anticipated in the second half of 2023; this could weaken further in 2024.
- There is talk of a recession, and the RBA risks overtightening if it hikes to 4.60% in February.
- Rate cuts in 2024 could spur economic activity again, making it a game of two halves.
See Also: Property market outlook, 2024
- Next release: 18 January
Unemployment is expected to trickle up but still remain quite strong in 2024.
That means people without work, but as we've seen recently, the labour force data has been volatile with a lot of people also finding themselves new jobs.
The RBA's latest forecast sees the unemployment rate trending up to 4.2% by end-2024; it's currently 3.9%.
At current labour force numbers that means a net 44,500 finding themselves without a job.
However strong immigration means more participation in the labour force, which could obfuscate numbers - a strong uptick the in the participation rate could achieve the same result, as CBA economists pointed out.
"We see the unemployment rate moving up to 4.5% by year-end 2024," they said.
"Importantly, no one need lose their job for the unemployment rate to rise; all that is required is for job growth to be slower than the increase in the working age population."
Seek job ads have also fallen nearly a third from their highs in 2022, and could fall level with pre-pandemic numbers in 2024, signalling an end to the 'jobs boom'.
GDP - a recession looming?
- Next release: December 2023 quarter, 6 March
The latest GDP figures came in at just +0.2% over the September 2023 quarter; it was 2.1% higher over the past 12 months.
Per-capita, we're in a recession. A recession is defined as two consecutive quarters of negative growth.
This result was much weaker than anticipated, with even the RBA's estimates off by a margin.
Weakness is expected to continue in 2024; the RBA forecasts +1.8% year-ended growth.
NAB economists have 2024 pegged for a weaker +1.4% growth.
AMP chief economist Dr Shane Oliver was perhaps most vocal about recession risks in 2024.
"Continuing to raise interest rates will only add to the already very high risk of recession, particularly given the uncertainty around the long and variable lags with which rate hikes impact the economy," Dr Oliver said.
- Next release: November monthly indicator, 10 January; December 2023 quarter, 31 January
Probably the hottest i word in 2023, inflation tapered strongly in the last quarter.
A CBA economist even said it could end at 3-point-something by the end of the year; we won't know for sure until 31 January.
The RBA sees headline inflation hitting 3.5% by end-2024, however the weaker economic results since these forecasts were updated led Westpac chief economist Luci Ellis to call these forecasts "stale".
"There is a risk inflation comes down too slowly; there is also a risk – in our view partly realised in the September quarter national accounts – that aggregate demand slows more than expected," Ms Ellis said.
As I have reported previously, the RBA has groomed Australians to the idea that inflation targets may not be reached until 2026.
The RBA's quest for targeting the 'midpoint' of the inflation goal of 2-3% i.e. 2.5% confirms this, according to NAB head of market economics Tapas Strickland.
"Much will depend on the details of the fourth-quarter CPI and balance of risks in returning inflation to the mid-point by the extended forecast horizon of mid-2026," Mr Strickland said.
NAB sees trimmed mean inflation in the quarter hitting 0.9% over the quarter.
The board meeting has commenced. pic.twitter.com/lHncTFykkw— Reserve Bank of Property (@RBASHAGGER) December 4, 2023
From 2024 the RBA will follow a US Federal Reserve-type model and move to eight meetings in a year, instead of 11; meetings will also be held over two days instead of one.
The board will meet to decide the cash rate in: February, March, May, June, August, September, November, and December.
Given the rather unfortunate timing of the RBA hiking on 7 November and weak September quarter GDP results coming through on 6 December, the move to fewer yet more substantial meetings has been welcomed by economic commentators.
Cuts from late 2024?
Weaker-than-expected GDP growth, and inflation falling faster than expected, quelled expectations of a rate hike in February.
CBA economists say the next move is down.
"Against the backdrop of rising unemployment and falling GDP per capita the Board will be quite reluctant to tighten policy further," CBA head of Australian economics Gareth Aird said.
That said, NAB is one of the more prominent voices sticking to its guns, calling a February rate hike - contingent on inflation data.
Where many agree is that rate cuts could happen in the back half of 2024. Precisely the time remains up for debate.
AMP's Shane Oliver sees the cash rate falling to 3.60% by the end of 2024; at current levels this implies three rate cuts.
CBA economists forecast similar, with the first cut starting in September.
They also forecast 75 basis points' worth of further rate cuts in the first half of 2025, which would bring it to 2.85%.
And off the back of that, property prices could go Brrrr once again, with the biggest bank pencilling in 5% property price growth in 2024.
Photo by AbsolutVision on Unsplash