Soft landing on the cards despite consumer anxiety, surveys show
Most consumers are worried about the economic outlook, but NAB believes inflation is on track to moderate without a recession.
Consumers are anxious about the economic outlook but economists believe a soft landing is still “very much” on the cards, predicting growth to pick up in early 2025 ahead of rate cuts in May.
According to the Westpac-Melbourne Institute index, released on Tuesday, consumer sentiment fell 2 per cent to 92.8 in December, driven by a deterioration of forward-looking components.
The biggest pullback was around expectations for the economy, Westpac said, reversing gains made in the previous two months.
The “economic outlook, next 12 months” sub-index dropped 9.6 per cent to 91.2, while the “economic outlook, next five years” sub-index fell 7.9 per cent to 95.9.
Head of macro-forecasting Matthew Hassan said the improvement of consumers’ current conditions and finances was “more than offset by a loss of confidence around the outlook, particularly for the economy”.
“That likely reflects several factors including a disappointing September quarter national accounts update; ongoing uncertainty around inflation and the potential for interest rate easing; and a more unsettled global backdrop,” Hassan said.
Data for the September quarter, released earlier this month, showed annual GDP growth slowing to 0.8 per cent and private demand stalling flat over the last six months.
Over the past few months, Reserve Bank governor Michele Bullock also reiterated that inflation was too high, causing markets to push back expectations of a rate cut from February 2025 to May.
But a dovish tilt in commentary from the RBA’s latest December meeting suggested it was gaining confidence in returning inflation to its 2 to 3 per cent target band.
As a result, economists at NAB predicted rate cuts could be brought forward to February if key data points, including the monthly CPI and labour force survey, were favourable.
The bank’s economic outlook for December said a soft landing was still “very much” expected and that growth would pick up in early 2025.
“We continue to expect ongoing modest acceleration in consumption to support a pick-up in growth from the trough through H1 2024,” it said.
It also said underlying inflation pressures had “cooled noticeably” from their peaks.
“Electricity and fuel drive low headline readings, but underlying inflation has also eased,” it said.
“We expect inflation to undershoot the RBA’s November SMP forecasts in Q4 with another low headline print driven by electricity rebates and lower fuel prices.”
NAB added that the inflationary impacts of a “still tight” labour market were also partly mitigated by soft wage growth, annualising at around 3.0 per cent for the past three quarters.
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