RBA predicts unemployment to rise, inflation to fall

The Reserve Bank of Australia has provided businesses with mixed news in its latest series of economic forecasts out to the June 2025 quarter.

On the one hand, the Reserve Bank has forecast:

• the economy will keep growing until June 2025.
• unemployment will remain low over the next three years.
• inflation peaked in December 2022 (at 7.8%) and will steadily fall until June 2025.

On the other hand, the forecasts also suggest:

• economic growth will slow from 2.75% in December 2022 to 1.75% in June 2025.
• unemployment will rise from 3.5% to 4.5% during that time.
• inflation won’t return to the Reserve Bank’s target band of 2-3% until June 2025.

Economic growth

The Reserve Bank has said economic growth should slow over the next three years, due in part to rising interest rates, the higher cost of living and declining consumer spending.

However, export volumes should grow strongly, partly because of the rebound in the tourism and education industries.

Unemployment

The labour market is “very tight” right now, but the increase in migration “has supported robust growth in employment and is helping to alleviate shortages in some areas”, according to the Reserve Bank.

Employment growth is expected to ease over 2023, which should lead to a gradual rise in unemployment later in the year and continuing through to 2025.

Inflation

The Reserve Bank said the easing in price pressures that’s occurring overseas should eventually flow through to Australia.

Slowing economic growth and rising unemployment should also put downward pressure on inflation.

“Inflation could turn out to be higher than expected if the high inflation environment leads to greater feedback between wages and prices than has been typical in the inflation targeting era. On the other hand, inflation could be lower than expected if the easing in goods inflation is faster or more widespread than anticipated,” according to the Reserve Bank.

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