The Forward View – May Economic insights

The May Editions of NAB Economics Forward View - Australia and Global - have compiled the latest insights into the economic climate, including inflation, interest rates and employment.
Australia's growth remains modest as the higher cost of living weighs on consumers.

"A number of data releases in April and May have provided valuable information about how the economy is tracking, confirming that demand growth remains subdued and the labour market is easing in line with our forecasts, but inflation nonetheless remains elevated at 4.0% y/y," NAB Chief Economist Alan Oster and his team said.

"The upcoming Q1 National Accounts release will provide a more detailed picture of how household incomes, consumption and savings have evolved, while the resilience of business investment in the face of slowing activity will also be of interest.

"We expect another very small positive for quarterly GDP growth but volatility in the trade and inventories components leave some risk of a negative."

Looking ahead, sticky inflation is unlikely to stop the next move for rates being down given subdued demand should slow inflation as the year goes on.

"The RBA is likely to remain on hold in the near-term and sees rates as sufficiently restrictive to bring inflation back to target - meaning the key question is how long rates need to be held at 4.35% rather than whether rates need to rise further," Mr Oster said.

"We maintain our view that the RBA will keep rates on hold until a first cut in November - though there is now a risk this slips to early-2025."

Read The Forward View Australia (May 2024) full report on the NAB Economics website.

Globally, NAB Group Economics' global economic outlook is essentially unchanged - with slightly stronger conditions for both the Euro-zone and United Kingdom in 2024 offset by a weaker forecast for Japan.

Key commentary includes:

• Inflation in advanced economies remained essentially stable for the third straight month, at around 2.7%. The stickiness of advanced economy inflation so far this year has reduced the likelihood of rapid policy rate cuts by central banks in 2024, which could negatively impact growth rates in 2025 and 2026.
• Restrictive monetary policy is set to slow global growth to 2.9% in 2024, before growth edges marginally higher in both 2025 and 2026 - to 3.0% and 3.1% respectively.
• Beyond the uncertainty around the path of policy rates and potential disruptions from tariff increases, there remain a broad range of geopolitical risks, with conflict and tensions in the Middle East, Eastern Europe and South East Asia. The outcome of the US Presidential Election could substantially impact foreign and trade policy, as well as how monetary policy is conducted.

Read The Forward View Global (May 2024) full report on the NAB Economics website.

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