NAB chief executive officer Ross McEwan has maintained a positive outlook on the Australian economy despite the risks posed by the most rapid monetary tightening experienced in decades.
Speaking at a recent function hosted by the Australian Business Growth Fund (ABGF), Mr McEwan highlighted the resilience of the domestic economy despite ongoing fears of a recession, singling out Australia as being “the luckiest country in the world”.
“I truly believe good businesses are going to flourish again – there’s a resilience in this economy that you’re not seeing in other economies around the world,” he said.
While acknowledging the rising cost of living experienced as the economy tightened, Mr McEwan noted that higher interest rates were necessary in order to combat inflation.
“Individuals are struggling with interest rates up; the cost of living is up. Everything is up … But we’ve just got to get them through because in another nine months, I think this economy will kick again,” he predicted.
The bank’s economists believe that the cash rate will likely peak at 4.35 per cent at the RBA’s November meeting following the release of the third quarter consumer price index (CPI).
“With recent data showing a clear trend of easing inflation and slower demand growth, the probability that 4.1 per cent is the peak for the cycle is growing – particularly given the RBA’s stated intention to seek to maintain the pandemic-era gains in the labour market,” they noted.
“However, a number of near-term upside pressures remain likely to challenge the RBA’s risk tolerance around inflation – particularly on the services side.”
Mr McEwan’s latest comments echo those made in his opening statement to the House of Representatives standing committee on economics last month.
“Households and economies globally are now grappling with inflation that has triggered rapid increases in interest rates and applied pressure on households and businesses,” he said.
“Australia remains well placed relative to the rest of the world to deal with this. Unemployment is low, there is strong demand for our natural resources, and migration is returning. While the economy has slowed, we will still have growth and many businesses are still ambitious.”
In its August statement on monetary policy released last week, the RBA lowered its expectations for GDP growth over the next two years, with an expected slowdown in growth from 1.6 per cent over the year to June to 0.9 per cent over the year to December.
“GDP growth is forecast to remain subdued over the rest of 2023, with GDP per capita declining over this period,” the central bank said.
“The soft near-term outlook reflects subdued growth in household consumption as higher interest rates and cost-of-living pressures weigh on real disposable income. However, higher household net wealth – reflecting the recent increase in housing prices – is forecast to provide some support.”
After falling below 1.0 per cent later this year, the RBA then expects annual GDP growth will recover beginning next year.
“GDP growth is forecast to increase gradually from early next year, supported by household consumption and public demand,” the RBA explained.
“Household consumption growth is forecast to increase to around its pre-pandemic average, supported by a recovery in real income growth and a pick-up in household wealth. Exports will continue to be supported by the rebound in tourism and solid growth in education-related travel.”
The latest statement on monetary policy also included new forecasts for the year to December 2025, with the RBA predicting GDP growth to rebound to 2.3 per cent.