CBA summary points of their forecasts:
- We forecast GDP growth to be 0.7%/yr at Q4 23 and 1.9%/yr at Q4 24.
- Broadly flat real household consumption over the remainder of 2023 sits at the heart of our forecasts for the economy to grow significantly below trend and be in a per-capita recession for the remainder of this year.
- We put the odds of a recession in 2023 at 50% as the lagged impact of the RBA’s rate increases continues to drain the cash flow of households that carry debt.
- We expect the annual rate of inflation to decline to 3.8% by late 2023 (our forecast is for underlying inflation to be 3.6 %/yr in Q4 23).
- We expect the unemployment rate to grind higher over 2023 to end the year at 4.4% and to be 4.7% by mid-2024.
- Our economic forecasts are conditional on one final 25bp increase in the cash rate in Q3 23 for a peak this cycle of 4.35%. They are also conditional on 125 bp of policy easing in 2024.
- Monetary policy is now deeply restrictive, which means by definition the economy will slow materially from here
Earlier this week we had data from Australia showing Q1 economic growth came in at a very sad 0.2% q/q. Its not much further down to slip into contraction, and two consecutive quarters of contraction is the commonly accepted definition of a recession. The RBA is seeking to drive inflation back to their target range, and it’s a long way above. The RBNZ said, during their rate hike cycle, that they’d drive New Zealand into a recession if that’s what it took to get inflation down. So far NZ has avoided a recession. The ‘but’ is that the RBNZ began their rate hike cycle much earlier in the inflationary cycle, with the RBA dithered with excuses, along the lines that Australia was different to the rest of the world and inflation was only transitory. The RBA were wrong on both. Having slipped so far behind the curve fighting inflation the RBA do look likely to drive Australia in recession.