As we approach the conclusion of 2023, Crest Financial Services offers a comprehensive overview of the economic landscape in 2023-2024, featuring key insights from senior financial advisor, Rhys Higgins. Let’s delve into the current state of Australia’s economy and what to expect in the coming year.
In the intricate economic landscape of 2023, Australia encountered various challenges and shifts in key indicators. According to the Reserve Bank of Australia, inflation remains above 5 per cent in year-ended terms, down from its peak at 7.8% in December 2022, however, remaining well above the Reserve Bank of Australia’s target range of 2-3%. Concurrently, GDP growth slowed to 2.1% since September last year, as real consumer demand dwindled from a decline in real household disposable income influenced by higher inflation and increased mortgage interest rates, according to figures released by the Australian Bureau of Statistics (ABS).
A pivotal aspect of the economic narrative in 2023 was the decline in the household saving-to-income ratio from 2.8% to 1.1% (Australian Bureau of Statistics). Financial advisor Rhys Higgins from Crest notes, “The rising cost of living in 2023 has impacted how Australians accumulate money, leading to a reduction in savings. Many Australians have needed to tap into savings accounts to cope with increasing prices.”
In the outlook for 2024, the Reserve Bank of Australia (RBA) foresees persistent economic challenges for Australians. The RBA predicts no real income growth until the end of 2024, and although inflation is expected to remain higher than anticipated, it is projected to subside to within the RBA’s preferred 2-3% range by the following year (2025), which will keep raising the cost of living and impact on Australia’s power to save money, says Rhys Higgins.
Concerning the labor market, the unemployment rate is expected to increase from 3.6% in September to 4.25% by the end of 2024, maintaining this level until at least the end of 2025 (RBA). Additionally, wage increases are showing little evidence of sparking a “price-wages spiral,” with the wage price index expected to ease back to 3.7% by the end of 2024 (RBA Forecasts).
Rhys also underscores the global influences and risks on Australia’s economy. He highlights the impact of the overseas situation on market shares and inflation, noting concerns about the wavering of the Chinese economy, uncertainties caused on the Hamas-Israel dispute and the ongoing war in Ukraine.
As Australia concludes 2023, Rhys anticipates shifts in consumer behaviour for the coming year. Australians may choose to reduce travel, opt for lower-cost products, cut general expenses, and explore additional income sources. This will have an impact on how Australians accumulate wealth over the short to medium term. However, given Australia’s strong Retirement Savings (Super), the escalated savings should continue to grow despite the cashflow pressures; says Rhys.
Despite these challenges, Rhys expresses economic optimism, stating, “At the end of the year, the economy is improving, and Australia maintains a strong economic position compared to other countries. Economists expect better conditions by the end of 2024, and so do we.” This scenario makes the management of assets even more important and emphasizes the significance of professional long-term financial advice, which Crest is well-positioned to provide.
References:
Reserve Bank of Australia (RBA) Publications:
https://www.rba.gov.au/publications/smp/2023/aug/domestic-economic-conditions.html
https://www.rba.gov.au/publications/smp/2023/nov/overview.html#:~:text=Statement%20on%20Monetary%20Policy%20%E2%80%93%20November%202023Overview,of%202%E2%80%933%20per%20cent.
International Monetary Fund (IMF):
https://www.imf.org/en/News/Articles/2023/10/31/cs103123-australia-staff-concluding-statement-of-the-2023-article-iv
Australian Bureau of Statistics (ABS):
https://www.abs.gov.au/media-centre/media-releases/australian-economy-grew-02-cent-september-quarter
ABC News:
https://www.abc.net.au/news/2023-12-09/tax-hitting-household-savings-more-than-interest-rates/
Australian Industry Group (Ai Group):
https://www.aigroup.com.au/resourcecentre/research-economics/economics-intelligence/2023/august-australian-economic-forecasts/
https://www.aigroup.com.au/resourcecentre/research-economics/economics-intelligence/2023/june-global-economic-forecasts/
The Guardian:
https://www.theguardian.com/australia-news/2023/nov/10/australians-wont-experience-real-income-growth-until-end-of-2024-rba-forecasts#:~:text=%E2%80%9CBecause%20of%20the%20more%20resilient,least%20the%20end%20of%202025.