Our economic outlook for Australia
June 25, 2024
Our outlook for year-end 2024
1%
Economic growth,
year over year
Australia’s economy eked out real GDP growth of 0.1% in the first quarter, a result of weak labor productivity that has persisted for nearly two years. We foresee growth below trend for the full year in an economy that appears to be operating near capacity despite weak demand.
3%
Headline inflation,
year over year
Unit labor costs are growing at a rate well above what is consistent with the 2%–3% inflation target of the Reserve Bank of Australia (RBA), contributing to overall sticky inflation. We expect a slowing in the growth of rental prices and wages to assist disinflation, though we expect such a slowing to be gradual.
4.35%
Monetary policy rate
We expect the RBA to be one of the last developed markets central banks to cut its policy rate—which we don’t foresee happening until 2025. To break the RBA’s tolerance for weak GDP data, opening the door to policy easing, inflation will need to return to sustainable levels.
4.6%
Unemployment rate
The employment-to-population ratio remains near its November 2023 high, suggesting a still-tight labor market. We expect the unemployment rate to rise from its current 4.1% to around 4.6% this year as financial conditions tighten amid elevated interest rates.
What I’m watching
Elevated unit labor costs
Labor productivity has sagged since mid-2022 and wages have risen, pushing unit labor costs well above what would be consistent with the RBA’s 2%–3% inflation target. We believe the Australian economy is operating around full capacity. Given diminished productivity, a sustained period of weak demand will be needed to bring inflation down to target.
Grant Feng,
Vanguard Senior Economist
Notes: Data reflect year-over-year percentage changes of four-quarter moving averages.
Source: Vanguard estimates using data from CEIC as of June 8, 2024.
Notes: All investing is subject to risk, including the possible loss of the money you invest.