Tough economic conditions to continue for first half of 2024, KPMG predicts
The domestic economy has slowed significantly but is expected to improve in the later part of the year, according to the big four firm.
The Australian economy is expected to experience tough economic conditions for the first half of this year but will start to pick up once interest rates start to loosen, the latest economic outlook by KPMG says.
The accounting firm said that economic growth had already slowed to a snail’s pace in the September quarter and will likely be zero for the December 2023 quarter.
“Higher interest rates and low consumer confidence finally had a significant impact on economic activity, with measures of real household disposable income, consumption and savings showing a noticeable pullback compared with the start of the year,” it said.
The economy is expected to improve over the second half of the year, with some positive indicators already emerging such as a recovery in house prices over the past six months.
“This may start now to seep through into an improvement in consumer sentiment, and a lift from its historic lows, recognising it is still a long way from a neutral or positive setting,” the outlook said.
The RBA is also starting 2024 with a more helpful outlook than it did at the start of last year, KPMG said.
The November monthly CPI results showed headline CPI running at 4.3 per cent annually, down from 4.8 per cent in October and 7.4 per cent in November 2022.
Of the 27 categories measured in the November CPI, 4 recorded deflation, 12 recorded disinflation and 11 still recorded growing prices.
The futures market is pricing in two 25 basis point cuts in the cash rate during 2024, the first in August and the second in December, with a further 25 basis point reduction by May 2025, taking the cash rate back down to 3.6 per cent by the middle of next year.
For this to happen, inflation must firstly return to be close to or within the 2 per cent – 3 per cent target band, said KPMG.
“KPMG’s forecasts suggest this is possible, with headline CPI expected to be slightly over the upper end of the target band by the end of this year,” the outlook said.
Businesses still remain cautious of the immediate economic outlook, with hiring and investment intentions weakening as the year closed out, the accounting firm said.
“Measures of business confidence, economic conditions and capacity utilisation all deteriorated as 2023 progressed, with the outlook for 2024 also looking weaker,” it said.
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