Australia Economic Outlook
The economy expanded at a softer quarter-on-quarter rate in Q4, and the pace of expansion was likely underwhelming in Q1. Higher interest rates and a weaker international backdrop seemingly kept a lid on growth. Moreover, following a spike in January, business sentiment moved back to pessimistic terrain in February-March. On the other hand, the labor market remained robust in the quarter. Moving to Q2, economic conditions likely improved relative to Q1 amid higher consumer sentiment in April-May and rising business confidence in April. Meanwhile, in early May, the government delivered its 2023 budget. The document, which foresees the first budget surplus in 15 years—partly thanks to high commodity prices—increases social and military spending and includes financial measures to support small and medium-sized businesses.
Annual inflation came in at 7.0% in Q1, down from Q4’s 7.8%, which had marked the highest reading since Q2 1990. Therefore, inflation moved closer to the Reserve Bank’s 2.0–3.0% target band. Inflation is set to ease further ahead amid a waning base effect, but accelerating wage growth, statistical carryover and pass-through effects will keep it high.