ABC sticks to economic forecast after Labor victory

Commonwealth Bank (CBA) economists have announced that there will be no immediate change in the bank’s outlook following Labor’s election victory.

“In our view, the new government has made few proposals during the election campaign that require us at this stage to revise our economic forecasts,” said the ABC’s Australian economics director, Gareth Aird.

“In other words, our economic forecast and call the [Reserve Bank] The RBAs are unchanged despite the change in national leadership.

The bank currently expects core annual inflation to rise to 4.6% in the December quarter from 3.7% in the March quarter, before stabilizing at 2.7% last quarter of 2023.

The unemployment rate, which hit a nearly 50-year low of 3.9% in April, is expected to remain at 3.75% until the end of 2023, while the wage price index is expected to rise steadily , rising from 2.4% currently to 3.4% by the end of next year.

Additionally, an annual GDP growth rate of 4.4% was forecast by the bank for the fourth quarter of this year before growth reverses to 2.6% in the fourth quarter of 2023.

“There will of course be policy changes. Reform is expected around care for the elderly, childcare, housing and health. And there will be more focus on climate-related policies as Labor has set a 43% emissions reduction target by 2030, compared to the coalition government’s 26-28% target precedent by 2030,” Mr. Aird noted.

“But these areas do not change the dial of our economic forecast, which extends to the end of 2023.”

On interest rates, Mr Aird argued that the RBA should still proceed with a “business as usual” rate hike of 25 basis points next month.

“The Q1 22 WPI, released last week, indicates that the RBA is not facing a price and wage spiral like what is currently being seen in some other jurisdictions. As a result, the RBA does not have to fight wage growth by aggressively raising the cash rate,” he said.

“Furthermore, the prospect of a more than 25 basis point increase in the cash rate in June could imply that the RBA board has changed its assessment of the outlook for inflation and/or inflation risks. inflation depending on the change of government.”

Looking further ahead, the ABC said cash rate hikes are expected in July, August and November, taking the cash rate to 1.35%. The bank has scheduled another hike for February next year, which would take the rate to 1.60%, where it is expected to remain through 2023.

“A new budget is due in October 2022. The new budget will fully flesh out the Labor government’s fiscal strategy,” Mr Aird added.

“We will take into account all the information provided by the new government, including in the budget planned for October, when assessing the economic and political outlook.”

ABC sticks to economic forecast after Labor victory

The bank said a change in government does not currently require a change to its economic forecast or interest rate expectations.

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Last update: May 23, 2022

Posted: May 23, 2022

Jon Bragg

Jon Bragg

Jon Bragg is a reporter for Investor Daily from Momentum Media, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.