"That downgrade is centred on our households, and a 'consumer recession' is now forecast in 2023, with household spending expected to finish the year below where it started. "At a cash rate of 3.6 per cent, most Australians will be just fine. "Many, however, will not.
Australians are being warned the country's economy is on a “knife-edge“ after the Reserve Bank of Australia's string of interest rate hikes, with a “consumer recession” predicted for 2023.
GDP growth is expected to slow to around 1¼ per cent over 2023, with GDP per capita declining over the year (Graph 5.4). The weaker near-term outlook relative to three months ago reflects the softness in recent activity data.
Low wage growth, a surge in migration and a chronic housing shortage have now produced both a cost-of-living crisis and a housing crisis. According to the National Australia Bank, 40 per cent of renters are dealing with very high levels of financial stress.
Economic growth will continue to slow throughout 2023 under the impact of rising interest rates aimed at curbing inflation but Australia can avoid recession, according to CBA economic analysis released with the bank's half year results presentation.
In mid 2022, the panel assigned a 20% probability of recession in the next two years, but by February of this year that figure had grown to 26%. Most recently, the IMF downgraded growth forecasts for Australia from 1.9% in 2023 to a more timid 1.6%.
Our expectations for the labour market are largely unchanged – with weaker employment growth unable to fully absorb population growth – and unemployment is expected to rise to 4.7% by end 2024.
In the long-term, the Australia Inflation Rate is projected to trend around 3.20 percent in 2024 and 2.30 percent in 2025, according to our econometric models.
India to emerge as the fastest-growing economy in 2023, ahead of China and the US.
Australia may continue to be the lucky country and avoid a recession in 2023, but its global peers may not be so fortunate. Chief economist at Australian Retirement Trust Brian Parker says that Australia is relatively well placed to handle the economic turmoil.
“There is also unlikely to be further decline in property prices this year, as the market is stabilizing as interest rate increases start to level off. There are still plenty of buyers in the market and a lack of supply, which is keeping prices up.”
Although Australia has avoided the worst effects of a recession for almost 30 years, 2023 may be the year of a recession - if one thing keeps rising. With GDP on an upward trajectory, a 0.6 per cent uptick to be precise, and unemployment at an all-time low at 3.5 per cent - we're in a good economic situation.
The baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023.
Emerging markets (E7) could grow around twice as fast as advanced economies (G7) on average. As a result, six of the seven largest economies in the world are projected to be emerging economies in 2050 led by China (1st), India (2nd) and Indonesia (4th)
NAB: NAB predicts that the cash rate will remain at its current peak of 3.85% and will stay there for the remainder of the year, before falling again t0 3.35% by March 2024. NAB expects the cash rate to fall a further 25 basis points to 3.10 by June 2024, and stay at that level for the rest of the year.
Australia's Inflation Rate in 2023
Next year should mark the beginning of an interest rate decline, the Treasury expects. In a statement from July, Chalmers said it's expected that inflation will track down to 5.5% by mid-2023, and should fall to 3.5% by the end of 2023.
The single biggest cause of inflation is when the demand for goods and services outstrips supply. This results in businesses increasing their costs, because they know that only a small number of customers will go elsewhere.
[17] The most important aspect of our decision concerns the adjustment to minimum wage rates in modern awards. We have decided that award rates of pay will be increased by 5.75 per cent effective from 1 July 2023.
Australia's outlook remains strong. The IMF forecasts the Australian economy will grow by 1.6% in 2023. This means Australia will again outperform other advanced economies, which are expected to grow by an average of just 1.3%. This follows Australia's solid 5.2% growth in 2021 and an estimated growth of 3.7% in 2022.
Different economists and financial market commentators have different ideas about what constitutes a 'crash'. Australian property values experienced a downturn in 2022 and prices continue to fall—but predictions of the overall peak-to-trough price decline tend to vary between 15-25%.
In a best-case scenario, the U.S. will likely see a 'soft landing' with low/slow growth across 2023 before picking up in 2024. However, a downside scenario is a real possibility and could see the U.S. enter a prolonged recession lasting well into 2024, as is currently forecast for the UK and Germany.
Real GDP growth projections for 2023 and 2024
Annual GDP growth in the United States is projected at 1.5% in 2023 and 0.9% in 2024 as monetary policy moderates demand pressures.