Bendigo Bank’s June Economic Update: Economic data promising but David Robertson doubles down on no rate cut until 2025 forecast

13 June 2024

While the latest GDP data suggests the economy continues to slow, the impact of upcoming tax cuts and recent CPI data has led Bendigo Bank’s Chief Economist, David Robertson to issue a warning to Australian households – ‘don’t budget for a rate cut in 2024.’

“For the RBA to cut rates, they will need to be convinced high inflation is fully contained; and the latest monthly CPI figures unfortunately don’t help that perception,” Mr Robertson said in his June Economic Update today.

“With both headline CPI and core inflation rising marginally in the April data, this uptick, together with the uncertainty of the impact of state and federal budgets, adds to a ‘rates on hold’ outlook.

“Similarly, uncertainty around how much of the tax cuts will be ‘saved versus spent’ doesn’t appear consistent with further RBA hikes, so our long-held view the RBA will start cutting rates early next year remains unchanged.

“Other advanced economies have also seen stubborn inflation pushing back easing cycles with the US on hold until September at the earliest; although pleasingly, both the Bank of Canada and the European Central Bank cut rates last week, a reminder that tightening cycles are generally behind us, even if easing cycles may be later and shallower as inflation takes longer to dissipate,” Mr Robertson said.

“On the growth front, real GDP only rose 0.1 per cent in Q1, and annual growth slowed to just 1.1 per cent, the lowest year-on-year pace since 2020, while GDP per capita remained negative for the fifth consecutive quarter,” Mr Robertson said.

“Growth isn’t expected to rebound in the second quarter, but from July the Government’s stage three tax cuts will start to support household incomes, and by the end of 2024 inflation should be closer to 3 per cent, a level we haven’t seen since 2021, which will be less of a drag on the economy.

“Two other considerations for interest rates here in Australia are labour markets, with the RBA’s dual mandate to manage inflation but at the same time to try to preserve as many jobs as possible and also, the ongoing trends in rental and house prices.

“The recent Federal Budget doubled down on commitments to work with states to build 1.2 million homes by 2029, but house prices continue to reflect demand exceeding supply with another 0.8 per cent added to dwelling prices in May, with big increases in Perth and Adelaide seen over the last three months.

“How quickly supply can be added to deal with housing affordability will have consequences for inflation, but it’s an uneven experience at present with listings in Victoria and Tasmania sharply higher in contrast to other states and territories.

“Lastly, the Aussie Dollar peaked around 67 cents last week but was unable to break higher so remains in its recent range, but volatility across the markets appears to be building,” Mr Robertson concluded.