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Deloitte Access Economics Business Outlook

Economy to grow, but stuck in second gear

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29 JANUARY 2024:  The global economy is entering a delicate stage of its post-pandemic rebalancing in 2024. Growth is likely to slow below trend before pivots in monetary policy return economic activity to a more sustainable path. Disinflation is likely to continue, but at a slower rateand on a bumpier path. 

Releasing the December 2023 edition of the flagship Business Outlook report, Deloitte Access Economics Partner and report lead author, Stephen Smith, said: “A global soft landing remains possible, but elevated uncertainty and volatility could significantly alter the narrative. Several factors are clouding the economic outlook including the lagged effect of monetary policy, ongoing global conflicts, structural change in China and elections in countries that collectively represent 60% of global GDP in 2024.

“Meanwhile, the outlook for the Australian economy remains soft. When data for the December quarter of 2023 is released by the ABS, Deloitte Access Economics expects it will almost certainly show Australia’s economic growth rate has dipped below 2% for the first time in three years.

“That shouldn’t come as a surprise given the RBA lifted the cash rate by 425 basis points through 2022 and 2023, with many Australian households struggling as a result.

“While the spending of migrants and older Australians who have avoided mortgage rate pain is helping to stave off recession, the outlook for growth in the Australian economy is modest at best.

“If realised, and excluding the pandemic period, the forecast growth of 1.3% in calendar year 2024 would be the weakest since the early 1990s recession. Deloittte Access Economics therefore expects 2024 to be a year when the mindset of economists and policymakers shifts from lowering inflation to raising economic growth.

The Bureau of Meteorology measures both the ambient temperature and the apparent (or ‘feels like’) temperature. That may be a useful way of thinking about the Australian economy over the near term, too – the economy will be growing, but it will ‘feel like’ a recession.

“It's a mouthful, but real household disposable income per capita is one way of measuring how the economy ‘feels’ to everyday Australians. It is calculated after taking account of inflation and population growth, and after taking account of taxes and mortgage payments. The boost during the pandemic was helped by stalling population growth, but it was also helped by government payments designed to support households and businesses. 

“It’s no surprise, therefore, that when those payments were withdrawn, and population growth returned at full throttle, real household disposable income per capita declined. Deloitte Access Economics estimates that households are experiencing a total peak-to-trough fall of almost 9%, measured on a financial year basis. In fact, real household disposable income per capita is expected to remain below the trend seen between the 2008 financial crisis and the pandemic for at least the next five years.

“That means economic conditions will keep feeling pretty tough for a while yet.”

“And so, as the disruption of COVID-19 recedes from view, the Australian economy is likely to be heading back to where it was before the pandemic stole the headlines. That will likely mean that by the end of 2024, the primary economic challenge for the country will not be lowering the rate of inflation, it will be lifting the rate of growth.

“What then? Lower inflation, the return of real wage growth and the potential for interest rate cuts in the second half of 2024 will have Australian households breathing a sigh of relief. But more robust longer term growth prospects would require some economic reform. Tax policy tops the list, as it has done for more than two decades – the last major tax reform was the introduction of the Goods and Services Tax in 2000.” 

Note that the forecasts contained in the December 2023 edition of Business Outlook were finalised and provided to subscribers prior to the Federal Government’s announcement of proposed amendments to the Stage 3 tax cuts. Deloitte Access Economics does not consider that the proposed amendments will have any material influence on the economic outlook or would change the forecasts contained in Business Outlook

Deloitte Access Economics’ costings of the proposed changes indicate a hit to the Federal Budget of around $2.6 billion in 2024-25 on an accural basis. However, as the advice of Federal Treasury makes clear, the implications for the Federal Budget look quite different on a cash basis, with a boost to the bottom line of $1.6 billion anticipated by Treasury. Deloitte Access Economics agrees with the Treasury advice that the changes to Stage 3 will not have any discernable effect on inflation (and therefore interest rates). 


“As 2024 commences, some industries look to have turned a corner while others are bracing for pain still to come,” Smith said. “The mining industry has defied soft global demand, yet that outperformance looks likely to fade. Cost of living pressures have plagued the retail industry for almost a year, while a surge in international students in 2023 led to a rampant recovery in the education industry.

“Residential construction is failing to keep pace with population growth, yet businesses looking to grow have been hampered by an inability to attract enough skilled workers. This environment amplifies the importance of the Federal Government’s new Migration Strategy released in late 2023, which has a range of implications for Australia’s major industries.” 

States and territories 

“The outlook across Australia’s states and territories is varied, including because of different exposure to cost of living pressures. Larger mortgages in New South Wales and Victoria mean rising interest rates hit households harder, while Western Australia and Queensland continue to enjoy solid commodity export earnings.”

Key forecasts: Deloitte Access Economics Business Outlook, December 2023

Business Outlook is a quarterly publication presenting detailed economic forecasts and commentary to help understand the economic forces shaping the business environment. The forecasts cover a detailed assessment of the national economy, world growth prospects, each of Australia’s states and territories, and industries.