reserve bank australia Archives

Quarterly Economic Update: January-March 2024

9 April, 20244 April, 2024 Updated on4 April, 2024 Economy, Finance, Investing

The first quarter of 2024 saw the Government roll out considerable changes to the Stage 3 Tax Cuts, inflation continuing to slow but remaining stubbornly high across some areas, surging stock market highs and continuing pressures in the property sector. Government Overhauls Stage 3 Tax Cuts In January, the Labor government unveiled changes to the proposed stage 3 tax cuts, aimed at providing bigger tax cuts to middle Australia. The new changes, which passed the Senate to become law in February, retain the tax bracket that would have been scrapped under the original proposal, and adjust tax rates to benefit both lower and higher-income earners. The changes will take effect from July 1 and are summarised as follows: Taxable Income Bracket Tax rate New Tax Plan from July 1, 2024 Below $18,200 0% $18,200 to $45,000 16% $45,000 to $135,000 30% $135,000 to $190,000 37% Above $190,000 45% Original Stage 3 tax cuts Below $18,200 0% $18,200 to $45,000 19% $45,000 to $200,000 30% Above $200,000 45% Inflation continues to ease Inflation continues on a downward trend, with the RBA expecting it to return to the target range of 2-3 percent in 2025, and reach the midpoint in 2026. Service price inflation remains high despite goods price inflation decreasing, supported by continued excess demand and strong domestic cost pressures. The RBA expects the consumer price index (CPI) to come in at 3.3% by June, compared with 3.9% forecast three months ago. As a result, the board decided to leave the cash rate unchanged at 4.35 per cent at the first official meeting for the year.  Share Market Highs Global share markets have been breaking records this quarter, with the ASX200, S&P500, Eurozone and Japanese markets reaching record highs, helped by US inflation data coming in as expected, leaving the Fed on track to cut rates from mid-year. Whilst economic growth both locally and globally is forecast to slow, there is optimism in the market as inflation has started easing and is likely to continue falling, and central banks across the US, Canada and Europe are expected to start cutting rates in the coming months. Recession still looms as a risk, but it appears the economy may be moving toward a soft landing. Housing market continues to tighten The national vacancy rate fell to a new low of 0.7 per cent in February, highlighting the ongoing supply and demands challenges in rental properties across Australia, as a result of a construction sector under strain, rapid population growth from migration, and rising property prices. Whilst the government has put stricter measures on international students to try to ease demand pressures, supply continues to be an issue, with building approvals falling by 1 per cent in January, though multi-unit dwelling approvals increased by 19.5 per cent in the same period. Property prices continued to rise despite higher interest rates, inflation and cost of living concerns. The Home Value Index was up 0.6 per cent nationally in February, and showed an increase in all capital cities except Hobart. Labour market cooling Labour market conditions cooled over the December quarter 2023, with an ongoing shift away from full-time employment and growth in part-time jobs, and a decrease in recruitment activity. These trends are consistent with Treasury forecasts that growth will continue to ease and the unemployment rate will increase from 3.9 per cent in January to 4.2 per cent by June, and 4.3 per cent by the end of the year. Despite clear softening, labour market conditions remain tight, and many employers are experiencing challenges finding suitable workers to fill positions, while some shortage pressures remain evident. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Quarterly Economic Update: Oct – Dec 2023

10 January, 202410 January, 2024 Economy, Finance, Investing

Global growth is forecast to slow and remain below its historical average in 2024, reflective of tighter monetary policy in advanced economies, as well as a soft outlook for China. Australians can expect higher prices, higher interest rates and higher population growth, with economic growth and unemployment decreasing. Inflation continues to bite With a new Governor at the helm of the RBA, and inflation tracking down since its peak in the December quarter 2022, public sentiment hoped that rate rises would be paused. However, the RBA delivered another rate hike at the November 2023 meeting, bringing the official interest rate to 4.35% – the highest level since 2011. It is likely that an increase in the monthly CPI indicator was a key trigger for the RBA to raise rates, as the monthly indicator rose to 5.2 per cent in August, and then rose again to 5.6 per cent in the September data. However, the next monthly data point, for October (which came out after the November rate rise) had inflation decreasing to 4.9 per cent. Services inflation remains high and was the primary driver of stronger-than-expected underlying inflation in the September quarter. Interest rates – will they or won’t they? The RBA continues to be cautious about the inflation outlook for Australia for several reasons: high and sticky inflation in the services market, house prices recovering sooner than anticipated, a tight labour market and increasing population growth due to migration. A survey of 40 economists by the Australian Financial Review shows that the median forecast is that the RBA will start cutting rates in September 2024, whilst the bond market is projecting an easing of rates by mid-2024. The RBA will meet only eight times in 2024, reduced from 11, beginning in February – following an independent review ordered by the Treasury. Coupled with the RBA governor’s commitment to return inflation to the target range of 2-3%, more rate hikes may be on the cards. Holiday spending to remain flat A survey by Roy Morgan forecast shoppers to spend $66.8 billion during the pre-Christmas sales period, only up 0.1% from the same period in 2022, likely as a result of cost of living impacts. Sales spending for the Boxing Day period to December 31 was expected to be about $9 billion, including $3 billion on Boxing Day itself, as retailers prepared larger discounts than usual after a slow year. Hot Property House and unit prices grew steadily in 2023, with a national annual growth rate of 5.42% (6.54% in capital cities). The main drivers include the highest net overseas migration levels ever recorded, few vacant properties and stronger demand for established homes due to the construction industry facing capacity and cost issues. This growth forecast is expected to continue as most experts believe demand for housing will continue to outstrip supply. However, Australia’s cost of living increases and interest rate uncertainty will keep biting—leading to weaker price growth than previous years. The rental market remains in a critical shortage of available dwellings according to SQM Research. Due to the ongoing supply and demand imbalance, the market is expecting capital city rental increases of 7-10% for 2024, on top of an average 10% market increase in 2023. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Quarterly Economic Update: Jul – Sep 2023

11 October, 20238 November, 2023 Updated on8 November, 2023 Economy, Finance, Investing

Australia’s annual inflation rate has taken an unexpected step up, increasing pressure on the Reserve Bank to push interest rates higher and once again raising the prospect that Australia will fall into recession sometime over the next few months. The annual inflation rate for the year to August reached 5.2 per cent, up from 4.9 per cent recorded for the year to July, spurred by higher prices for petrol, financial services, and labour costs, following the 5.75 per cent wage rise for 2.4 million Australian workers in July. Some analysts believe recent wage increases and the Federal Government’s drive to reduce unemployment levels below their current historic low levels and provide more union friendly workplace regulations, will combine to push wages even higher. The prospect of further wage hikes, low productive improvements combined with continued high levels of inflation, threatens to return the Australian economy to the dismal economic days of the seventies and with it, stagflation. Of all the domestic price hikes though, higher petrol prices are seen as the most troubling as they have such significant flow through effects, making everything in the country more expensive to produce and so lifting the cost of living for all Australians. The prospect of higher oil prices internationally, following a decision by Russia and Saudi Arabia to restrict production to boost prices, has cast gloom across the global economy, putting economies everywhere under pressure of higher energy costs. Globally, US Treasury 10-year bond yields rose to above 4.5 per cent during the past month, taking them to their highest level since the global crisis started in 2007, as fears mount that climbing inflation will persist for years to come. This, and the generally accept downturn in growth in the massive Chinese economy, is prompting fears overseas that the US economy will certainly fall into recession next year, with developed countries around the world certain to follow. While there was hope the Reserve Bank was succeeding in driving down inflation, this latest uptick in prices and overseas interest rates, will put the Reserve Bank under renewed pressure to lift domestic rates yet again. Although the much talked about fixed-rate mortgage cliff seems to have been averted, where homeowners have faced the end of super low fixed rate loans and been forced to move to higher variable rate loans, pressure is emerging in the housing market. According to figures from the research house, Core Logic, the number of homes that have been sold at a nominal loss, and which have only been owned for two years or less, has increased from just 2.7% to 9.7% during the June quarter. Pressure is building most clearly in the sale of home units with 14.4 per cent of all unit sales across Australia selling at a loss during the June quarter, compared to just 3.8 per cent of all homes sold during the same time. There also seems to be a trend where people who moved to the regions during the pandemic are starting to sell up and drift back to the cities.  Resales within two years of purchase, made up 11.1% of all regional resales, compared to a decade average of 7.2% per year. A rare bright spot for investors remains the hefty returns to shareholders with Australia’s largest listed companies paying out some $21.7 billion during the last week in September, by way of improved dividend payments. BHP paid out $6.34 billion to their shareholders via a $1.25 per share dividend, Fortesque Metal paid out $3 billion via a $1 a share dividend and after posting a record-breaking profit, the Commonwealth Bank of Australia paid out $4 billion by way of a $2.40 a share dividend. The information provided in this article is general in nature only and does not constitute personal financial advice. 

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