According to Bloomberg article published on May 24, 2023, Australia’s risk of an economic downturn edged higher in May, a Bloomberg survey showed, as the Reserve Bank is expected to keep interest rates elevated for an extended period in order to beat back inflation.
The chances of a recession in Australia climbed to 38% from 35% in April, according to 14 economists. A broader poll of 35 analysts conducted over May 18-23 showed that the RBA will likely hold its key rate at the current 3.85% in the first quarter of 2024, then begin easing in the second — three months later than in the previous survey.
“Annual inflation is declining, but is still likely to stay too high for too long a factor influencing the RBA to hold the cash rate at its peak for longer,” said Stephen Roberts, an economist at Laminar Capital.
Australia’s central bank unexpectedly raised rates three weeks ago as policymakers worry about the persistence of price pressures in the economy. The RBA projects inflation will only reach the top of its 2%-3% target in mid-2025 and mounting services costs and soaring rents put that forecast at risk.
Economists also nudged up unemployment forecasts in line with the higher for longer policy outlook. The jobless rate is now seen at 4.1% in the final three months of 2023 and peaking at 4.6% in the third quarter of next year.
Australia’s unemployment rate unexpectedly rose in April to 3.7% from 3.5%, or close to a 50-year low that it’s been hovering around since about mid-2022, as higher borrowing costs flow through to the labor market.
The RBA is trying to slow the economy to cool inflation and economists reckon growth will decelerate to 1% in the fourth quarter from a year earlier, before beginning to revive in 2024.
