Family businesses face a mixed economic outlook in the second half of 2024, with economic growth and household disposable income expected to pick up, but the inflation picture to remain complex.
In June, ANZ Research pushed out its expected start to the Reserve Bank of Australia’s easing cycle by three months to February 2025. That decision was driven by sticky inflation, less weakness in household consumption than previously thought, and ongoing growth in government consumption, and the possibility trend growth in the Australian economy could be as low as 2 per cent.
ANZ Research expects the headline consumer price index (CPI) to show growth of 2.8 per cent year on year in 2024, but 3.4 per cent in 2025 – mainly due to the temporary effect of various cost-of-living (COL) measures, particularly electricity rebates.
Those measures are not, however, expected to have a material influence on trimmed mean inflation, which is a measure of the underlying trend in inflation. ANZ Research year-end forecast on that measure is growth of 3.4 per cent, year on year, although its year-end 2025 forecast is 2.8 per cent.
ANZ Research expects the central bank’s rhetoric around inflation in the second half of 2024 will focus heavily on that trimmed mean measure, as it is unlikely to be materially impacted by the temporary COL measures.
Importantly, ANZ Research forecasts the six-month annualised rate of trimmed-mean inflation falling just within the RBA’s 2 per cent to 3 per cent target band in the fourth quarter of 2024. With the fourth-quarter CPI data to be released in late January, this may open the door for the RBA to start cutting rates at its February 2025 meeting.
A follow up 25-basis-point easing in April 2025 is currently forecast by ANZ Research, but it is also possible in May.
ANZ Research sees risks around the start to the easing cycle as balanced. The labour market could soften more than expected, which could bring rate cuts forward to November, or the impact of the tax cuts and other cost-of-living relief could support consumption more than anticipated, pushing rate cuts out further.
Less pessimistic
First-quarter national accounts data showed upward revisions to Australian household consumption, turning a previously sidewards trend into a soft upwards trend. While household consumption growth is still weak at just 1.3 per cent year on year and has fallen by 1.1 per cent year on year on a per-capita basis, the recent revisions paint a less pessimistic picture.
Tax cuts and COL relief measures will provide a significant boost to real household disposable incomes from the second half of 2024. Across federal and state governments, the additional fiscal easing over 2024-25 is starting to become material at around 0.5 per cent of gross domestic product (GDP).
After falling by 1.9 per cent on a per-capita basis in the year to March, ANZ Research expects real per capita household disposable incomes to be up 1.9 per cent year on year in the third quarter.
The extent to which this increase in income is spent or saved remains uncertain. That said, the low level of consumer sentiment suggests a reasonable portion could be saved. ANZ Research therefore expects only a very mild lift in household spending.
That lift, along with expected solid growth in public final demand and business investment, should see a modest increase in GDP growth over 2025 and 2026.
Slow upward drift
The labour market has continued to ease, reflected in a slow upward drift in the unemployment rate. Forward-looking labour market indicators and the below-trend pace of GDP growth suggest that increase will likely continue.
To date, much of the adjustment in the labour market has been in hours worked. With average hours worked per person now broadly back to the long-run trend, ANZ Research expects the pace of employment growth to slow from here, although a small fall in the participation rate should limit the extent of the increase in unemployment, which ANZ Research expects to peak at 4.3 per cent.
Wage growth will likely be slow to decline despite the clear easing in the labour market. Growth in the wage price index looks to have hit its peak of 4.2 per cent year on year in the final quarter of 2023 but is expected to fall moderately to 3.6 per cent by year-end 2024.
Recent decisions by the Fair Work Commission on additional increases for employees in the aged care sector and the prospect of spillover into other industries suggests a little upside risk on wages growth.
Amid challenges in the macroeconomic backdrop, there are indicators of a gradual improvement in economic conditions, which could benefit family businesses that plan strategically to enhance resilience and sustain growth.
Adam Boyton is the Head of Australian Economics at ANZ and Catherine Birch is Senior Economist at ANZ
This is an edited version of a note from the ANZ Research report “ANZ Research Quarterly: striving towards a new normal(isation)”, published June 25, 2024.
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