As 2023 draws to a close the debate in global markets remains focused on the success, or otherwise, of the major central banks returning inflation to the 2 per cent target range, writes Stephen Halmarick.
Chances are high that the RBA could achieve the desired “narrow path” or soft-landing in 2024 as higher interest rates have the desired effect of slowing the economy without pushing it into recession, according to Commonwealth Bank’s Chief Economist Stephen Halmarick.
“Looking ahead, 2024 will have more than its fair share of risks and challenges, particularly geopolitical risks as well as the United States presidential election,” Mr Halmarick said.
“Despite these obstacles, the Australian economy remains in relatively good shape.”
We are forecasting:
The RBA will lower the cash rate by 75bp in H2 2024, starting in September, and a further 75bp in H2 25, as inflation comes back into the RBA’s 2 – 3 per cent target range slightly earlier than the RBA forecasts itself.
Employment growth is expected to remain positive in 2024, but we see the unemployment rate moving up to 4.5 per cent by year-end 2024. Importantly, no one need lose their job for the unemployment rate to rise, all that is required is for job growth to be slower than the increase in the working age population.
A slowdown in net migration – as well as consistent and coordinated measures to increase the supply of new dwellings – will be critical to restoring some balance to the Australian housing market.
Dwelling prices to rise by a further 5 per cent in 2024, following 9.6 per cent growth since the trough in February 2023.
Mr Halmarick said while the Australian economy is losing momentum, led by a slowdown in household spending, inflation was also decelerating – albeit at a slower pace than other nations.
“The good news is that the pace of global inflation clearly begun decelerating around mid-2023 and we expect further deceleration in 2024, however markets will also focus on the balance between returning inflation to 2 per cent targets, without doing too much damage to labour markets,” he said.
“As 2023 draws to a close, markets have shifted to our view that the global monetary policy tightening cycle is at an end, and that 2024 will see interest rate cuts from some of the major central banks, especially the US Federal Reserve and the RBA.
“CBA is forecasting the annual rate of inflation back at 3 per cent at the end of 2024, well ahead of the RBA’s current forecast and closer to the Commonwealth government’s latest forecast. We also expect the RBA to begin a modest monetary policy easing cycle from September 2024 onwards.”
Both the RBA and markets will also need to get used to the new rhythm of the RBA in 2024, with eight meetings in the year, regular press conferences and a new monetary policy board, Mr Halmarick noted.
Heading into 2024, Mr. Halmarick said climate change would also prove pivotal to the outlook.
“Global capital will need to continue to flow into markets and industries that can help the world move towards the net zero carbon target.”
