Economic and Financial Market Update: The 2023 Economic Outlook

Summary:

• The Australian economy did well in Q3;
• Economic growth is likely to remain decent for the next couple of quarters although an increasing proportion of the population is feeling economic pain;
• The economy will likely slow notably in the second half of 2023, and into 2024;
• But there are good reasons to think the downturn will not be too sharp.

Economic growth in the September quarter was good

The economy grew by 0.6% in the September quarter. The consumer carried the day, notably catch-up spending on services (restaurants, holidays). Inflation was prominent. The tight jobs market at a time of strong labour demand meant a big jump in the wages bill.

There was a tone of commentary following the GDP release that the data was consistent with a weakening economy. Sure, the declining housing market led to a fall in ownership transfer costs (the costs of transferring assets such as selling a house). But, the 0.6% quarterly rise was in line with the average quarterly economic growth rates in the years’ before COVID. The growth rate would have been stronger but for the loss of hours due to illness (COVID, flu), the impact of bad weather, and a higher than usual number of workers taking holidays after the lockdowns of the previous two years. More generally, worker shortages and lingering supply-chain issues continued to hold down the pace of economic growth.

To read my full update, click here.

We live in interesting times.

Regards,

Peter Munckton - Chief Economist