The chief economist of Commonwealth Bank predicts that Australia’s economy will slow down until mid-2024. However, a combination of tax cuts, interest rate cuts, and easing inflation is expected to boost spending.
In January, the CommBank Household Spending Insights index rose 3.1%, reversing December’s 3.5% slide. The rebound was led by a 13.5% rise in travel and recreation spending, thanks to record crowds at the Australian Open in Melbourne. Household goods spending was also up 10.5%.
The effects of the Reserve Bank’s interest rate rise will be felt this month as variable lending rates get adjusted after a lag. “February numbers will be critical,” CBA’s Stephen Halmarick said.
Australia’s gross domestic product likely expanded 1.5% in 2023 with household consumption up just 0.4%. Annual GDP growth will slow further to 1.3% by June before reviving to 1.8% by the end of 2024.
How households respond to the rising cost of living, higher interest rates, and taxes was one of the RBA’s key uncertainties in its rates setting. Should spending slow faster than expected, the central bank would be more inclined to cut interest rates.
The CommBank spending index, which tracks the purchases of more than 7 million CBA customers, registered modest increases in most of its 12 categories. Victoria’s reading was up 2.8% for the month alone, leading other states.
By the second half of 2024, households should start to get some relief, Halmarick said.
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Stage-three tax cuts: what’s changed and how we got here – video
The stage-three tax cuts – which have been revised by the Albanese government to increase the benefits for those earning as much as $146,000 a year – would kick in from 1 July, Halmarick said.
CBA predicts the RBA will start to cut interest rates from September, lopping 75 basis points off the current 4.35% by the year’s end. Similar sized cuts should arrive by mid-2025.
Inflation, too, should be “pretty close to 3%” by the end of 2024. Consumer prices were up 4.1% in the December quarter just past, compared with a year earlier.
“The combination of those three things will improve household disposable income,” Halmarick said.
The CommBank index was up 3.6% last month compared with January 2023. The biggest increases were for insurance, up 11.3% from a year earlier, with spending on health up 7.8% and education 6.8%….
2024-02-15 01:07:33
Source from www.theguardian.com
