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Australia faces slowdown in economic growth – CBA


Economic growth will continue to slow throughout this year due to surging interest rates aimed at taming inflation, but Australia can avoid recession, according to a new CBA economic analysis.

The analysis, released with the bank’s half-year results presentation, forecasted GDP growth to come in at 1.1% this calendar year. That figure was significantly lower than the 5.2% in 2021 and 3.6% last year when the country started to recover from the impacts of the COVID-19 pandemic.

The CBA forecast was also slightly lower than that of the Reserve Bank of Australia, which expected GDP growth to hit 2.25%

“While the latest bout of inflation is thought to have peaked at 7.8% in the December 2022 quarter, the ongoing effects of the price rises are not expected to dissipate until the end of this year and only start to return to the RBA’s target range of 2%-3% in 2024,” CBA said.

To achieve that, the RBA tipped the OCR to lift further, with CBA now expecting the central bank to increase interest rates to 3.85%. The bank’s economists expected 0.25% increases in March and April, respectively, before pausing to see what the full impact has on household and business consumption.

With consumer sentiment declining, house prices continuing to weaken, and the first signs of a spending slowdown emerging, CBA said it is expecting interest rates to be trimmed by the RBA in the fourth quarter of 2023 to help avoid the risk of recession.

“On the plus side, however, current and future growth will continue to be underpinned by low levels of unemployment, low under-employment and high participation rates while exports and non-mining investment continue to hold up well,” CBA said. “The pressures of a tight labour market should also be eased with a swifter return in net overseas migration.”

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