Federal Reserve Bank of New York

• NEW YORK and MONTVALE, N.J., Oct. 26, 2023 /PRNewswire/ -- Financial professionals expressed a notable reduction in economic confidence in North America in Q2, with mixed results elsewhere, according to the latest Global Economic Conditions Survey (GECS)  by ACCA (the Association of Chartered Certified Accountants) and IMA ® (Institute of Management Accountants) .
• The survey shows that confidence declined in the U.S. but was not as marked as North America's overall fall of almost 20 points.
• While global confidence declined modestly, it remains higher than a year earlier, and only slightly below its long-term average.
• Dr. Susie Duong, senior director of research and thought leadership at IMA, said: "The fall in confidence in North America of almost 20 points stands out.

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• Secure jobs are the most important element in consumer spending and well-employed Americans have powered the economic recovery for three years.
• The successes in these two groups have been critical so far in the economic recovery.
• But looking forward, it raises the question of how many more workers are available to be coaxed in off the sidelines.
• With the corn and soybean growing season in full swing, drought across the Central U.S. is driving heightened seasonal market volatility.

• The official quarterly measure of inflation peaked at 7.8% in the year to December and is now 7%, and the newer monthly measure peaked at 8.4% and is now 5.6%.
• Twelve of the 27 think a recession is either more likely than not, or an even chance.
• And almost all expect a “per-capita recession”, in which economic growth fails to keep pace with population growth, sending living standards backwards.

Two more interest rate hikes this year

• After 12 interest rate hikes that lifted the Reserve Bank’s cash rate from 0.1% to 4.1% in a little over a year, the panel expects two more.
• The panel predicts a cash rate of 4.5% by the end of this year, followed by a decline to 4.3% by the middle of next year, and to 3.9% by the end of 2024.
• Asked to specify the month in which the cash rate will peak, and how high it will go, the panel settled on a peak of 4.7% in November.
• A cash rate of 4.7% would lift the typical rate on a new mortgage from 5.4% to 6%, adding a further $200 per month to the cost of servicing a $600,000 loan.

Plummeting inflation, an uptick in real wages

• Although steep, the fall in inflation isn’t as fast as predicted by the bank itself (3.6% by mid-2024) or the Treasury (3.25% by mid-2024).
• Read more:
  Going down: the 6 graphs that show economic growth shrinking

  A welcome upside of much lower inflation forecasts is a forecast of the first increase in real wages in three years, albeit a small one.

• The panel expects wages growth of 4% in the financial year ahead, just beating price growth of 3.9%.
• The resulting 0.1% increase in the so-called real wage would be followed by a more substantial increase of 0.7% in 2024-25 as wages growth of 3.6% topped price growth of 2.9%.

A per-capita (if not an actual) recession

• Throughout 2023, the panel expects economic growth of just 1.2% in the US and historically weak growth of 4.9% in China, suggesting Australia’s biggest customer for minerals will be unable to provide much help as Australia’s own economic growth dwindles.
• The panel is forecasting Australian economic growth of just 1.2% in 2023 – the lowest rate outside a recession in more than 30 years, climbing to just 1.5% in the year to June 2024 and 2.3% in the year to June 2025.
• The average forecast start date of a recession, should there be one, is the final three months of this year.
• The panel’s economic growth forecast of 1.5% for 2023-24 is well below the Treasury’s forecast of population growth of 2%, suggesting output per person will shrink in what is called a per-capita recession.

Unemployment climbing, albeit slowly

• The panel expects a gradual increase in the unemployment rate from its present near-50-year low of 3.6% to 4.3% by mid-next year, followed by an increase to 4.6% by mid-2025.
• The forecasts are in line with those of the Treasury and Reserve Bank, and suggest Australia is unlikely to surrender the big gains in employment made in the aftermath of the COVID lockdowns and return to the pre-COVID unemployment rate of 5%.

Less household buying, higher house prices

• The panel expects growth in real household spending of just 1.5% in 2023-24, meaning the amount bought per household is likely to shrink.
• Yet at the same time, it is forecasting continued modest growth in home prices, which climbed for the third month in a row in May after falling since mid-2022.
• Most of the panel expects some growth in Sydney and Melbourne home prices in the year to June, with only four panel members predicting declines.

Tiny share market growth, tiny budget deficit

• The panel expects the budget surplus for the financial year just ended to be followed by only a tiny budget deficit of A$9.4 billion in 2023-24, which would be less than 0.4% of GDP.
• Two panellists, Mariano Kulish and Stephen Anthony, expect this year’s surplus to be followed by another one of $18 billion to 20 billion.
• Anther, Jenny Gordon, expects this year’s surplus to be followed by a budget in balance.

The Conversation’s Economic Panel

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