Australia (Commonwealth)_In 2023, Australia faced the specter of a technical recession, a threat averted by an unexpectedly high migration surge, with over half a million people relocating to the country, bolstering overall demand amid a decline in per capita consumption. Despite recession-like conditions for many Australians, marked by interest rate hikes, rising taxes, and a soaring cost of living, the unemployment rate remained near 50-year lows, and property prices continued their ascent.
The Reserve Bank of Australia (RBA) implemented five interest rate hikes in 2023, raising rates from 3.1% to 4.35%. Economists initially underestimated the extent of these hikes but are now divided on whether another increase is imminent. However, after lower-than-expected GDP data in December, there is growing anticipation that the RBA might shift its stance and consider rate cuts in 2024.
Inflation, a concern throughout the year, showed signs of slowing, with the Consumer Price Index at 4.9%, still double the RBA’s target of 2-3%. Economists predict a gradual decline in inflation, emphasizing the challenge posed by persistent services inflation.
The migration-driven economic boost that helped Australia avoid a technical recession is expected to ease in 2024, with population growth projections declining. Economists anticipate a slowdown in GDP growth, emphasizing the ripple effects of COVID-19.
While unemployment remained stable in 2023, experts foresee a gradual increase in 2024 as demand weakens. The RBA’s cautious messaging about potential higher unemployment is seen as a necessary adjustment to prevent prolonged unsustainable inflation.
Property prices, despite rising interest rates, are expected to continue growing, albeit at a slower pace. The impact of interest rate adjustments and the reduction in migration-driven demand are likely to temper the housing market.
Global factors, including geopolitical events like the Russia-Ukraine war and changing trade relationships, will continue influencing Australia’s economy in 2024. The economic benefits from the war may diminish, affecting commodity prices and the federal budget.
As the RBA enters a new era under Governor Michele Bullock, changes in operations are expected in 2024, though the bank’s commitment to maintaining low inflation and achieving full employment remains unchanged. The first meeting of 2024, following December quarter inflation data, could signal further interest rate adjustments.
In conclusion, 2024 presents a nuanced economic landscape for Australia, marked by potential interest rate cuts, inflation challenges, shifting migration dynamics, a cautious property market, and ongoing global influences.
