KPMG forecasts tepid growth in quarterly economic outlook
The big four firm has predicted low economic growth and weak consumer spending in the most recent quarterly economic outlook.
The KPMG quarterly economic outlook report has indicated an expectation of low economic growth and weak consumer spending based on current and persistent economic trends.
Despite predicting “tepid” growth, KPMG said a slight uptick is expected by the end of the year due to being at the bottom of, or close to, the current economic cycle.
KPMG chief economist Brendan Rynne said it is expected for Australia’s GDP growth to remain tepid on an aggregate level and moribund on a per-capita basis.
“Headline economic activity has only remained positive in recent quarters due to the combination of high levels of net overseas migration and government spending,” Rynne said.
“That being said, KPMG believes we are either at the bottom of the current economic cycle and we should begin to see a slight lifting in economic activity, albeit well below historic trends.”
The report outlined that the outlook for weakness in the private side of the domestic economy is to remain in the near term, given worsening disposable household income and for consumer spending to stay subdued in the foreseeable future.
Rynne said financial challenges faced by households seem to be worsening, as gross disposable income is growing slower than households are using it.
The majority of household income is also being spent on the interest payments of dwellings and income tax payments – more than since 1959.
“The commencement of the stage three tax cuts from 1 July 2024 may in theory bring this ratio down slightly, but early evidence from banks is that Australian households have saved and not spent this clawback in personal income tax payments,” Rynne said.
“In our report, analysis of a wide range of indicators, such as credit and finance commitments, shows financial conditions for households are particularly restrictive, although less so for businesses.”
KPMG said although this report portrays a somewhat “grey economic narrative,” there is a ray of light in terms of the strength in the Australian labour market.
This will weaken despite the unemployment rate being low by historical standards and in comparison to developed economy peers, KPMG said.
The report revealed headline inflation will fall substantially in FY2025 due to policy initiatives; however, it will rise again once the rebate “drops off.”
“KPMG expects the RBA will commence the easing cycle with an initial 25bp cash rate cut in February 2025, on the basis that the real cash rate would be too restrictive at that stage,” Rynne said.
“We believe this will be followed by two further such cuts by the middle of the year and two more by the end of 2025 or early 2026.”
Rynne said KPMG believes that a cash rate of 4.35 per cent was “sufficiently restrictive” for Australia, due to direct sensitivities to monetary policy transmission compared to other jurisdictions.
“We simply needed time for the relatively tight monetary policy settings to ‘do their thing’ and bring down inflation.”
“A softening global economy also faces a backdrop of several deepening conflicts, as well as broader geopolitical tensions and rising trade restrictions.”
“By the end of the year we expect global growth to have edged down from last year.”
About the author
