Australia Economic Outlook
The economy expanded at a steady quarter-on-quarter pace in Q2, but available data suggests it likely lost some momentum in Q3 amid higher interest rates. The unemployment rate averaged slightly higher in the third quarter than in Q2, while consumer sentiment weakened. On top of this, M2 money supply rose at a softer pace year on year—a further sign of weakening momentum. On the flipside, business confidence strengthened, while month-on-month retail sales swung into growth. Momentum is expected to remain broadly stable in Q4, with diverging data showing rising consumer confidence but worsening conditions in the manufacturing sector. Meanwhile, in late October, the government announced that it had temporarily abandoned talks regarding a free trade agreement with the EU due to a lack of progress in negotiations.
Annual inflation came in at 5.4% in Q3, down from Q2’s 6.0% and moving closer to the Reserve Bank’s 2.0–3.0% target band. Inflation is expected to ease from current levels in 2024 amid a more favorable base effect and as the effects of monetary tightening are fully transmitted to the economy.