Economic Outlook Summary

Global Economic Outlook: Central Banks Expect Inflation to Return to Target

Central banks of the most advanced economies are currently assessing their policy rates as restrictive, with expectations that inflation will return to target levels over the next year. Global growth is anticipated to be soft in the coming years, which will contribute to a decrease in demand for Australian goods and services.

Australian Economic Forecast

The economic growth forecast for Australia remains subdued in the near term due to factors such as inflation and higher interest rates impacting demand. GDP growth is expected to be softer than previously projected, mainly due to a weaker outlook for household consumption. However, growth is expected to gradually pick up from late 2024 as inflation declines and pressure on household incomes eases.

Labor Market and Inflation

Conditions in the labor market are expected to ease gradually to align with full employment objectives in the next couple of years. Nominal wages growth is projected to remain robust in the near term before gradually easing. Inflation is also anticipated to moderate and return to the target range of 2–3 per cent by 2025, reaching the midpoint in 2026.

Global Economic Outlook

Global growth is expected to be below average, with inflation declining to align with central bank targets in many economies. Year-average GDP growth in Australia’s major trading partners is forecasted to ease in 2024, leading to weaker demand for Australian goods and services. Central banks are predicting a decline in inflation to match their targets, alongside expectations of softer economic growth and a moderate easing in labor markets.

Risks to the Outlook

The risks to the global economic outlook are tilted to the downside, with key concerns including slower-than-expected inflation decline, uncertainties around the impact of earlier monetary policy tightening, and potential weaknesses in China’s growth affecting global demand. In Australia, risks are assessed to be broadly balanced, with potential costs associated with both weaker demand and prolonged high inflation.

Overall, the economic landscape presents challenges and opportunities for policymakers and businesses alike, with a focus on navigating through uncertain times while aiming for sustainable growth and stability.