National Australia Bank (NAB) released its Forward View report, forecasting that economic growth was likely to slow down to less than 1% over the next two years. According to the report’s findings, the economy is expected to grow by just 0.8% in 2023 and a marginally better 0.9% in 2024. This is also much below the trend growth rate of about 2.25%-2.5%.
The slowdown is expected to be driven by retail shoppers opting to cut back on spending in the coming years. According to retail spending figures that NAB has been tracking, consumer spending dipped by 0.3% in October, ending a nine-month streak of growth. The report found that although spending had kept up in the hospitality segment, people had reduced their spending on household goods, travel, and recreation.
The report also expects that the Reserve Bank will continue to increase interest rates well into 2023 in a bid to keep quelling rising inflation. The cash rate is predicted to peak at 3.6% by March 2023, with the Reserve Bank likely to hold the rate at that level for about another year. Following the most recent interest rate hike by 25 basis points, the NAB predicts further 25 basis point hikes during the next three meetings that would take the cash rate to 3.6% by March 2023. This action is however also expected to result in a rise in unemployment.
The NAB report indicated that unemployment was likely to increase over the next two years to about 4.5% by the second half of 2024 as the economic slowdown lowered labour demand and migration pickups. Wage growth is expected to keep rising but is likely to peak at around 3.5%. The high inflation is likely to result in higher costs from wages in 2023.
When it comes to inflation, NAB estimates that the country has reached its near-term peak and expected the trimmed mean inflation to track at about 4% by the end of the year. The rising interest rates are also likely to result in a sharp decline in business and housing loans in 2023. Business credit growth is also expected to fall from 14.7% to 3.6% in 2022.
When announcing its profits for the year ending in September 2022, NAB confirmed it had recorded strong returns from its business and home lending following rising interest rates that enabled its cash earnings to reach A$7.1 billion. This is compared to profits from the previous year amounting to A$6.56 billion and against analysts’ predictions of A$7.08 billion. NAB CEO Ross McEwan attributed the outcome to their strategy focused on targeted volume growth, managing costs, and investing for growth.
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