Economists at ANZ Bank have downgraded their Australian GDP forecast to 1.5% year-on-year by end-2023. Notwithstanding the slower forecast growth trajectory, the the extent of RBA tightening is unchanged.

Growth downgrade doesn’t change the policy outlook

“We have downgraded our Australian GDP forecast to 1.5% YoY by end-2023 (prev: 1.8%) but expect Australia willavoid recession this cycle.

“The labour market, wages growth and the path of inflation will determine the extent of RBA tightening in 2023. We have pared our forecast peak for headline CPI inflation to 7.8% YoY in Q4 2022 (prev: 8.0%) but underlying inflation will be particularly sticky.” 

“An extended period of restrictive rates will be required to bring inflation back to target, notwithstanding the slower growth trajectory. We see the cash rate peaking at 3.85% by May 2023 with no cuts until late-2024.”