Amid growing frustrations over stagnant economic growth, Bendigo Bank’s Chief Economist, David Robertson, has maintained his prediction that Australians will have to wait until 2025 for interest rate cuts. His September Economic Update paints a picture of cautious optimism for the future but warns of the ongoing challenges in the near term.
According to Robertson, despite some central banks, like the Bank of England and Reserve Bank of New Zealand, having already begun their rate-cutting cycles, the Reserve Bank of Australia (RBA) is not yet ready to follow suit. The country’s headline inflation rate has been dropping steadily, but the more significant issue lies with underlying inflation, which remains stubborn and is slowing down the process of bringing rates back to a more neutral level.
The latest GDP figures confirm a sluggish 0.2% growth for the second quarter, with a total growth of 1.0% for the year, marking Australia’s weakest economic performance outside of the pandemic since the 1991 recession. Despite this concerning data, Robertson notes that the RBA will need more concrete signs of inflation control before considering any adjustments to interest rates.
Robertson also draws attention to a somewhat overlooked aspect of Australia’s current economic state—the country is in a per capita recession. This means that while the population and government spending have contributed to overall GDP growth, household consumption continues to decline. The ongoing squeeze on household budgets, combined with rising prices, has led to a significant fall in discretionary spending, with households cutting back in response to the pressures of inflation.
In a somewhat sobering analysis, Robertson points out that Australia’s current 1% annual growth rate, while technically positive, does little to reflect the reality of many Australians who are feeling the effects of a per capita recession. The strain on household incomes is evident, with spending down by 0.2% for the quarter. Discretionary spending, in particular, has taken a sharp hit, as consumers prioritise essentials and hold off on non-essential purchases.
However, there is light on the horizon, according to Robertson, who offers some hope for Australian households. He forecasts that the recent declines in economic growth, household consumption, and disposable income are likely to reverse in the coming months. Stage 3 tax cuts, alongside electricity rebates, are expected to provide some relief to struggling families, and as inflation becomes less of a burden on household budgets, incomes are forecast to start picking up again.
The challenge, however, lies in the timeline for relief. Robertson remains firm in his view that rate cuts will not arrive until 2025, with February or May being the most likely months for action, depending on inflation data. While that may seem a long time away, he advises Australians to keep an eye on two key factors that could influence the RBA’s decision-making process: the jobs market and financial market volatility.
Although the jobs market has remained relatively strong, with unemployment sitting at 4.2%, any sudden deterioration in employment figures could alter the RBA’s strategy. A rise in unemployment could hasten the need for rate cuts, as household incomes would come under even more pressure, further depressing consumer spending.
At the same time, financial market disruptions could also come into play. While there have been some spikes in volatility, particularly in equity, bond, and foreign exchange markets, these have yet to necessitate intervention by the central bank. Still, Robertson advises caution, noting that any significant dislocation in the markets could prompt the RBA to move more quickly than planned.
For now, however, Australians will need to remain patient as the country continues to navigate an uneven transition from a tightening cycle to an easing one. Robertson acknowledges that the current landscape remains challenging, with the effects of tight monetary policy continuing to weigh heavily on households.
There is also the matter of property prices, which have continued to rise despite broader economic challenges. Robertson highlights that regions with a constrained supply of new dwellings have seen property values continue to trend upwards. However, he expects more moderate increases in property prices over the course of the financial year, with growth broadly aligning with inflation.
Ultimately, Robertson’s forecast for the Australian economy is one of gradual recovery. While the near term will continue to be marked by weak growth and stubborn inflation, the economist anticipates a slow but steady improvement in household incomes and consumer confidence. When interest rate cuts finally arrive, they are expected to bring some relief to households and contribute to a more stable economic environment. However, the road to recovery will not be without its bumps, and Australians should prepare for a long wait before any significant policy shifts take place.
As it stands, 2025 is still the target for rate cuts, and even then, it will take some time for the full effects to be felt across the economy. In the meantime, Robertson encourages Australians to take heart in the knowledge that the worst may soon be behind them, with growth and incomes set to improve in the coming months.
David Robertson’s update, though cautious, offers a glimpse of optimism for the future. Yet, the message remains clear: patience is key, and households should brace for continued economic headwinds in the short term before any meaningful relief arrives.
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💰📉 @bendigobank’s Chief Economist, David Robertson, predicts no interest rate cuts until 2025, despite ongoing economic challenges. 🕒🏠 How do you think this will impact Aussie households? Share your thoughts & join the conversation! 📊 #TheIndianSunhttps://t.co/4T8cEsvZEj
— The Indian Sun (@The_Indian_Sun) September 6, 2024
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