Outlook for 2024
15th January 2024
As we move headlong into 2024, it looks like we have hit peak interest rates at 4.35%. Headline inflation has started to ease with CPI falling to 5.4% from its high of 7.8% in December 2022. This is still above the RBA’s target range of 2-3%. However, service inflation remains sticky, and the RBA still has some concerns here. Unemployment remines low at 3.9% compared to its long-term average of 4-5%. But has increased from its low of 3.5% in 2022.
The higher interest rate and inflationary environment has taken its toll on households with the household savings ratio falling to 1.1%, the lowest since 2007. The main contributing factors for this have been increased spend on services, income tax, and interest payments by households. Furthermore, it looks like higher energy and fuel costs will remain in 2024, and geopolitical events look like they will persist in 2024 and possibly get worse. This will more than likely cause more supply chain and inflationary issues for consumers and businesses. Government still continues to spend on welfare, social issues, and infrastructure. Although not at level that are considered inflationary, it does very little to help reduce it. Once again, the current federal government finds itself in between a rock and a hard place when it comes to the budget. With any stimulatory and cost of living measure likely to contribute to inflation, and with very little room to move on taxes and revenue. As the Government is heavily reliant on record income tax revenue (due to record low unemployment) to meet interest payments and pay down/back record debt levels. Furthermore, the quagmire that is IR law and the Fairwork Commission is doing very little to help productivity, with recent industrial action and award rate pay increase further adding costs to businesses. More on this point, rightly or wrongly, the push to net-zero and increased use of renewable energy in our gird, is still continues to add further costs to households and business.
Based on the above, and following on from previous economic updates, I still see interest rates higher for longer and inflation remaining above the RBA’s target range of 2-3% for 2024. Leading to a tougher 2024 for households and consumers. With possibly a rate cut in the back end of 2024 (I would like to be proven wrong on this). In summary, 2024 will be a year where parts of the economy fare better than others. With the business sector being able to pass on higher costs to consumers. I see parts of the business sector such as energy, medical services, food retail, mining weathering tougher conditions better than retail, travel & leisure, freight and logistics. But there is no doubt that consumers and households will have a tougher year ahead as the impact of 13 interest rate increases start to really take their toll.
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