The economy: Five Things That Need to Go Right in 2024

Economic commentaries for 2024 appear to lurch from doom and gloom to one of the best outlooks this century, with the difference apparently lying solely with the commentator and whether they feel optimistic or not. So, let’s take a closer look at what might go wrong or right.

Almost every economic forecast is focused on interest rates. Has the Reserve Bank of Australia stopped increasing rates and if so, what are the chances of the RBA reducing interest rates during the next twelve months.

The answer to these questions lies solidly with the outlook for inflation. Most economists believe inflation, both here in Australia and overseas, has peaked and that the trend is for further price rises to ease as we move through the next twelve months.

However, will these falls be strong enough to convince the Reserve Bank that inflation is well and truly back within its 2-3 percent range and that the economy can sustain interest rate cuts without them sparking another surge in price rises. Good question.

A raft of statistics suggest Australians are cutting back spending on clothes and going out less, which should in turn, restrict any further price increases but will this continue when the much talk about July Stage 3 tax cuts take effect.

Despite having repeatedly confirmed it will not change the structure of the next round of tax cuts, the Government has suddenly announced it will in fact “tweak” them as but of its broader efforts to reduce the cost of living for struggling Australians.

These proposed changes will mean more cash for low-income households and smaller tax cuts for those on the higher tax brackets, so it will be interesting to see the impact of this on inflation this will have.

Regardless of the impact on inflation, it is becoming increasingly likely that the Reserve Bank will wait to see what the impact of the Stage 3 tax cuts will have on the local economy before they move to reduce interest rates.

So, it is hard to see any interest rate cuts occurring before the end of this calendar year. While the Government might be putting more money back into low-income households, there is little sign of any relief for those paying a mortgage.

At the same time, there is increasing uncertainty on the world stage. Economic activity in China is now slowing with significant structural issues emerging internally regarding the domestic Chinese economy and a rise in failing financial institutions.

As Australia’s largest trading partner, this is not a good thing and should prompt Australia to look harder at diversifying the number of trading partners we have and perhaps not rely so heaving on just one or two Asian countries.

At the same time, the events in the Middle East appear to be going from bad to worse, with the conflict spreading beyond Israel and the Gaza strip, which is already having an impact ono shipping costs, which will only put greater price pressures on imported goods here in Australia.