Citing meagre growth of the Australian economy in its latest quarterly analysis, KPMG said Australia “staggered” into 2024, edging closer to recession with just 0.1 per cent growth over the first quarter.
Australia’s slim 1.1 per cent economic growth over the previous 12 months shows “an economy in aggregate that is struggling to maintain forward momentum”, KPMG said.
It noted that several “important elements” of recently released data confirm the idea that the Australian economy has been moving sideways for the past six months.
Among them is a rapid fall in the household saving ratio from 1.6 per cent to 0.9 per cent in the March quarter due to the rising cost of living, alongside a flatlining in labour productivity as hours worked grew in line with GDP.
Moreover, KPMG noted a growth in the GDP implicit price deflator by 1.3 per cent due to increased domestic prices, alongside high services inflation.
“Even though the latest data revises upwards the GDP growth estimates for the December quarter 2023 from 0.2 per cent originally to now 0.3 per cent, when this result is combined with data for the March quarter 2024, it is clear that the Australian economy has barely grown over the past six months and has been a ‘heartbeat away from a recession’,” KPMG said.
This is not the first time that KPMG has alerted to Australia’s difficult condition, with its chief economist Brendan Rynne branding the March quarter GDP figures as a show of an economy bordering on recession.
Noting that while in normal circumstances, an economy on the brink of recession would induce the Reserve Bank to lower rates and stimulate activity, given Australia’s “still sticky” inflation, “KPMG expects the RBA to still sit on its hands for at least another quarter”.
In fact, KPMG doesn’t think the RBA will lower interest rates until next year. Its forecast puts the rate at 3.85 per cent in June and 3.28 per cent in December 2025, where it’s predicted to remain for some time.
On inflation, KPMG said it will contract to 3.3 per cent by the end of this year, before reaching the top of the RBA’s target band (2–3 per cent) by June next year. It’s then projected to move to 2.7 per cent by the end of 2025, before picking up slightly to 2.8 per cent in June 2026.
This is in line with the RBA’s own expectations, with the central bank projection in May that inflation would return to within the target range of 2–3 per cent in 2025 and reach the midpoint in 2026.
“When considering interest rates from an inflation-adjusted perspective, Australia’s real policy rate is notably lower than those in the US, UK, Canada and Europe, essentially because those markets are further down the disinflation pathway than we are,” KPMG said.
“However, the current inflation cycle in Australia lagged other advanced countries, by around six to nine months, so it would be expected any policy rate cuts occur with a similar lag,” it added.
According to KPMG’s predictions, Australia’s economic growth will come in at 1.4 per cent at the end of this year, before recovering steadily to 2.4 per cent in 2025. The unemployment rate will rise as inflation falls to end the year at 4.3 per cent, before steadily climbing to 4.6 per cent at the end of next year.
