Economist at UOB Group Lee Sue Ann comments on the latest GDP and inflation results in Australia.

Key Takeaways

“The Australian economy grew 0.5% q/q in 4Q22, below expectations of 0.8% q/q, and below the revised 0.7% q/q print in 3Q22. From a year earlier, the economy expanded by 2.7% y/y, within expectations, but much lower from 3Q22’s reading of 5.9% y/y. The latest GDP prints is in line with our view of growth turning softer as high inflation and interest rates weigh on households alongside a slowdown in global growth. We see Australia’s GDP growth slowing this year to 1.7% from 3.7% in 2022.”

“Meanwhile, monthly CPI rose 7.4% y/y in Jan, down from 8.4% y/y in Dec. The latest reading, however, is the second highest annual increase since the start of the monthly CPI indicator series in Sep 2018, signifying ongoing high inflation. That said, inflation seems to have peaked in 4Q22, in line with our view. Our full-year 2023 inflation forecast of 4.8% remains unchanged.”

“All in all, the Reserve Bank of Australia (RBA) has raised the cash rate by 325bps since May 2022, and in Feb, stated that its priority is to return inflation to target, and that further increases in interest rates will be needed over the months ahead. We are keeping our view of two more 25bps hikes in Mar and Apr, which will take the OCR to 3.85