Vanguard's Economic and Market Overview
Australia
3% to 3.5%
Economic growth
Global factors including effects of the war in Ukraine and
tightening financial conditions as inflation soars have pushed
our 2022 growth forecast down by a percentage point since
the start of the year. Its status as a commodities exporter may
not be enough to save Australia from recession in 2023 if
large developed markets take that path.
~7%
Headline inflation
Even as their impact may subside over the next 12 months,
high energy prices will likely push up prices for an array of
goods and services. A tight labor market and wage growth
are likely to keep core inflation above 3% through 2023.
Inflation is above the Reserve Bank of Australia's target
and hasn't peaked yet.
~2.5%
Monetary policy
Broad-based and persistent inflation has the Reserve Bank of
Australia on course to raise its rate target by more than two
percentage points in 2022, from a starting point near zero. We
expect the cash rate to eventually exceed a neutral rate that
we estimate at 3%, though a slowing economy may mean a
pause at some point.*
~4%
Unemployment rate
Unemployment at a historical low just below 4% will likely
stabilize as growth momentum slows. Labor shortages will
take time to resolve, however, and we anticipate upward
pressure on wages to persist. Thwarting a wage-price
spiral will be a goal as the Reserve Bank of Australia seeks
to re-anchor inflation expectations.
*The neutral rate is the theoretical interest rate at which monetary policy neither stimulates nor restricts an economy.
Notes: Figures related to economic growth, inflation, monetary policy, and unemployment rate are Vanguard forecasts for the end of 2022.
Growth and inflation are comparisons with year-end 2021; monetary policy and unemployment rate are absolute levels.
For institutional use only. Not for distribution to retail investors.
WHAT TO WATCH
A new inflation psychology
Inflation is suddenly top of mind for Australians, to the
point that they're factoring it into their decisions and
adapting their lives to it. Such an un-anchoring of
inflation expectations can spiral out of control—and we
expect the Reserve Bank of Australia to act decisively
to prevent that.
100
Google Australia inflation searches (weekly)
75
50
25
0
2018
2020
2022
Notes: A value of 100 represents peak popularity of a search term.
A value of 50 means the term is half as popular.
Source: Google Trends, as of June 20, 2022.
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