Australia’s growth environment has become slightly tougher as consumer caution increases in the wake of a rate hike from the Reserve Bank of Australia.
But for business, the key factor remains the same, according to ANZ Chief Economist and Head of Research, Richard Yetsenga. It’s about supply.
“I think the main message for business in general has not changed, and it's the same as it's been in the last few years,” he told ANZ Institutional Insights on video.
“We're in a supply-constrained world, rather than a demand-constrained world.”
That slowdown in consumption is being driven by higher rates, Yetsenga said, “because that's what the [RBA] needs to do to keep inflation in target”.
“It's the supply side. It's the access to the materials and labour at the right price, which I think is the main constraint for most businesses. Not the fact demand might be too weak.”
You can hear the comments on video below.
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Earlier in February, ANZ Research revised down its growth forecasts for Australia for 2026, largely due to the “interest-sensitive nature of housing and our expectation that soft consumer confidence and sentiment will see spending growth by households slow”.
That followed a move from the RBA to hike interest rates by 0.25 basis points to 3.85 per cent, in line with market expectations.
Yetsenga told Insights Australian consumers had become more cautious since the economic conversation turned from more easing to hiking through 2025.
“[The ANZ-Roy Morgan] confidence numbers really started to tail off, particularly for questions about the longer-term outlook,” he said. “We ask a question on the economy in five years, for instance, over January, that hit the lowest level in the history of the survey, including during the pandemic.”
That, along with other observations from the central bank, was enough to see ANZ Research “snug our numbers down a little bit”, according to Yetsenga.
Australia is, of course, not alone in its challenges, with many major markets, outside China, working on finding the right interest-rate balance.
“Most other economies have a similar mix of demand being constrained by the supply side, this perky inflation story,” he said.
“That tension between demand and supply showing up in inflation is a pretty common global theme. It's been with us for four years; I think it's the way of the future.”
