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A soft start

Contributor, ANZ Institutional Insights

2024-01-11 00:00

For the Australian economy in 2024, it’s all about momentum in the second half of the year.

Speaking on an ANZ webinar in December hosted by Bernard Hickey from the 5 in 5 with ANZ podcast, Adam Boyton, ANZ’s Head of Australian Economics, said businesses can expect a “fairly soft pace of growth” in the first half of 2024, before things begin to turn around after that.

“The headline number is for gross domestic product growth of 1.2 per cent over the year,” he said. “To give you some context around that, that’s about half of what the economy would normally grow at.

“As we move into the end of 2024 things should start to pick up a little bit, but certainly heading into the early part of 2024, things will be quite soft across the economy.”

Boyton was joined on the webinar by Senior Economist Adelaide Timbrell, Senior Economist Catherine Birch, and Senior Rates Strategist Jack Chambers.


Birch said the market could take confidence inflation would continue to ease in the early part of 2024 – indicating a stable interest rate environment.

“We think it’s unlikely the fourth-quarter consumer price index (CPI) is going to exceed the Reserve Bank of Australia’s forecast of 1 per cent [on a quarterly basis],” she said.

“That’s important because, as we saw after the third-quarter CPI data at the November RBA meeting, they have very little tolerance for inflation not slowing as quickly as what their forecasts have.

“That supports our view of no rate hike coming in February and us being at a peak (for interest rates) now.”

On an annualised basis, inflation is expected to fall within the RBA’s 2 per cent to 3 per cent target band by the second half of 2024, Birch said, giving the central bank “the evidence they need to see to be able to start that shallow easing cycle from late 2024”.


International factors are also likely to influence Australia’s rate environment, according to Chambers, with a shift in tone from the US Federal Reserve at the end of last year a “pivotal moment”.

“[In December] the Fed basically indicated they think the next [rates] move is down, and sometime next year,” Chambers said.

“We knew it was coming but what’s more surprising is the timing. We thought this shift would happen in about three months’ time or maybe a bit later as the Fed had a bit more information about inflation getting back to target.”

Chambers said the story was less about the exact timing of the cuts, and more about the nature of them - and why.

“We think the US economy will have a soft landing and the Fed will be easing because there will be a bit of softness in the economy and growing below trend,” he said. “But also inflation will be becoming lower and real rates will be rising.

“The Fed will ease basically to offset that move in real rates just to keep it at a constant level.”

That will help take “the sting off” restrictive policy, Chambers said, rather than add a lot of monetary easing to the economy.

“That all matters to Australia,” he said. “If you look historically, the US economy and the Australian economy are very well correlated.”

Pretty stable

Growth in Australia’s major project investment is expected to continue over the longer term, Timbrell told the call, with several multi-billion-dollar projects underway.

According to Timbrell, the public sector road and rail infrastructure pipeline will remain strong and drive growth, despite recent funding cuts to approximately 50 road and rail infrastructure projects.

“When we overlay the cuts with the infrastructure pipeline, it had almost no impact,” she said. “What I think is going to keep the major projects pipeline pretty stable, is that many of the near-term drivers of growth are projects that are already underway.

“It’s going to take a lot for a government to stop a rail project halfway through and particularly when we look at the government finances being a lot stronger than expected, that’s also less likely to occur.”

As reflected in ANZ’s Major Projects report, in the long term, energy-related investment will drive growth in the project pipeline, Timbrell said.

“When we look longer term, it’s really driven by renewable investment and mining that’s related to that, and infrastructure that’s to do with population growth,” she said. “We’re expecting to continue to see a strong pipeline, it’s just going to be the extent of that growth.

“What we have to remember for major projects is they’re looking long term. One year of weak economic growth is not going to stop someone from doing something that’s a ten-year, twenty-year investment or return period.”


Boyton said policy would have a significant impact on the longer-term macroeconomic outlook.

“If I think about where the economy is likely to go over the next 18 months, that’s all about policy,” he said.

“There’s a big tax cut coming on the first of July and we think that will lift growth and economic activity in the second half of [2024]. I also think we’ll get a bit more of a discretionary fiscal easing on top of that tax cut in the May budget, and I think the government will be keen to assist lower-income households that might not benefit from those tax cuts.

“[Fiscal] policy will be a really big driver of the economy… around the middle of the year.”

Alexandra Cooper is a contributor at ANZ Institutional Insights

The webinar discussion was based on the ANZ Research report “The Australian Economy in 2024 and 2025

A soft start
Alexandra Cooper
Contributor, ANZ Institutional Insights
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