Global economic growth is expected to remain weak over the near term, impacting countries like Australia, as tight monetary conditions continue to weigh on households and businesses, according to KPMG’s Australia Economic Outlook for Q2 2024. Despite a decline in inflation driven by weakening price growth for goods, services inflation remains problematic due to higher wages growth, resulting in core inflation being higher and stickier than headline inflation.

From an inflation-adjusted perspective, Australia’s real policy rate is notably lower than those in the US, UK, Canada, and Europe, as these markets are further along the disinflation pathway. Australia's inflation cycle lagged behind other advanced countries by around six to nine months, so policy rate cuts are expected to occur with a similar lag.

Australia’s economic performance since the start of the year has been meagre, with just 0.1 per cent real growth in the first quarter of 2024 and only 1.1 per cent growth over the past 12 months. The latest national accounts data shows an economy struggling to maintain forward momentum, with six out of the last eight quarters recording negative or flat GDP per capita growth, indicating a continued decline in the standard of living, as per KPMG’s outlook.

Households are facing increased costs of living. These factors suggest that headwinds to household consumption will persist in 2024 as interest rates are expected to stay higher for longer and inflation remains sticky, while households draw down their savings buffers. A gradual slackening in the labour market will further pressure household consumption. Some relief is expected from July with the onset of the Stage 3 tax cuts and various cost of living relief packages offered by the Commonwealth and state governments.

The extent to which these fiscal initiatives will impact the real economy remains uncertain. While many packages are designed to reduce headline inflation mechanically, the Reserve Bank of Australia (RBA) has acknowledged that it will look through the effects of these policies and focus on underlying price pressures in its policy rate decisions.

Fibre2Fashion News Desk (DP)