Economists cut Australia 2023 GDP outlook, signal inflation risk

ECONOMISTS lowered Australia’s annual growth forecast for 2023 and warned that elevated inflation fuelled by higher energy and food prices remained the biggest downside risk to the economy.

The median estimate for gross domestic product (GDP) next year was reduced to 2 per cent from a prior 2.3 per cent, implying it would slow to half this year’s 4 per cent predicted pace, Bloomberg’s latest survey showed.

Some 60 per cent of respondents identified inflation as the biggest threat to economic growth. Australian consumer prices surged last quarter to the fastest annual pace in 32 years. Other economists, though to a lesser degree, were concerned by a slowdown in global growth and tightening international financial conditions.

“Our outlook for growth is contingent on an easing in global inflation,” said Alan Oster at National Australia Bank. Should global inflation fail to moderate, local wages growth jump to more than 4 per cent or inflation expectations dae-anchor, “rates may need to rise further and more quickly”.

The Reserve Bank (RBA) has raised interest rates by 2.5 percentage points since May and many economists expect it will hike by a further quarter-percentage point on Tuesday (Nov 1) to take the cash rate to 2.85 per cent.

Overnight-indexed swaps imply a peak rate of 4.2 per cent in July 2023, while economists see the central bank halting tightening at 3.5 per cent.

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Australia inflation races to 32-year high, sounds rate alarm

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“The potential for a very large downside risk lies with a global slowdown,” said Sean Langcake at Oxford Economics. “The RBA is already treading a fine line trying to avoid overtightening.” BLOOMBERG