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Australia’s economy is on track for a soft landing after the recent Reserve Bank of Australia’s (RBA) decision to hold rates and the positive gross domestic product (GDP) data, according to major bank ANZ.
As part of its weekly macro report, the major bank revealed on Friday (8 September) that the economy was looking like it would achieve a soft landing, after concerns about a recession earlier in the year.
The brighter economic outlook comes after in late June when AMP’s chief economist Shane Oliver declared the likelihood of an Australian recession was “very high”.
At the time Mr Oliver was concerned the RBA was doing too much and not “allowing enough time to let the lagged impact of past hikes show up”.
However, with the favourable GDP results and RBA’s decision to hold rates again, ANZ said it would be “inclined to characterise the current pace of growth as soft rather than weak”.
“The higher-than-expected pace of growth supports our expectations that the labour market will remain somewhat resilient, despite still easing further, with the economy looking on track to achieve a soft landing,” the bank added.
The GDP data from Australia’s national accounts last week revealed an upward revision to growth in Q1, from 0.2 per cent to 0.4 per cent quarter on quarter, with Q2 also achieving 0.4 per cent, displaying stronger-than-anticipated growth over the first half of 2023.
The major bank attributed the increase in migration as a key factor in supporting the stronger-than-expected economic figures, stating that it could mask some weakness in overall activity, adding “the influx of migrants into Australia is also helping to boost economic activity”.
It said: “When we strip away the impact of strong population growth, GDP per capita is down 0.3 per cent over the year, following 0.3 per cent quarter-on-quarter falls in both Q1 and Q2.
“This weakness in per capita growth helps explain, in our view, the divergence between conditions being reported by businesses (relatively robust) and households (much weaker).”
ANZ’s report also showed that households are continuing to cut back, with discretionary spending down 0.5 per cent quarter on quarter, having now declined for three quarters in a row.
Fellow financial institution Bendigo Bank said the monetary policy hold from the RBA displayed that the economy was tracking in the correct direction, with household spending and headline inflation falling in real terms.
However, the chief economist at Bendigo Bank, David Robertson, said despite the positive signs the RBA’s tightening cycle might not be finished.
Mr Robertson stated: “The impact of tighter policy is playing out as hoped thus far, with retail sales and household spending now falling in real terms, GDP and jobs growth slowing, and demand for credit easing. This slowdown on the demand side is helping to achieve a better balance with damaged supply chains, which are steadily improving and, in our region, appearing more sustainable.
“While this data is not expected to give Michele Bullock any reason to tighten rates in October, it will be relevant for November’s RBA meeting after the next quarterly inflation report.
“We continue to suggest this tightening cycle will last longer than consensus forecasts, and that rate cuts are less imminent than many have predicted. The timing of the next RBA hike (if we are to get one) remains the most uncertain data.”
[Related: Lowe’s last gift to borrowers; Cash rate holds steady]
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