ANZ: Australia's Sub-3% Unemployment Before Growth Slows Below Trend

ANZ write “we recently brought forward our expectations of when the RBA will move to a restrictive policy setting to late 2022. Before this fully impacts the economy, we expect the unemployment rate to drop briefly into the 2s in early 2023 and wage growth to accelerate. While inflation will slow on a quarterly basis in H2 2022, we expect it to still be annualising well above the target band. Restrictive rate settings are likely to see growth slow below trend in 2023 (1.8% y/y) and 2024 (1.2% y/y). This will put upward pressure on unemployment, taking it back towards 4% by the end of 2024. We expect trimmed mean inflation to be slow to decline though, not getting back into the RBA’s 2-3% target band in per cent year-on-year terms until mid-2024. The combination of negative per capita GDP growth, an accelerating rise in unemployment and inflation slowing enough to annualise around the middle of the target band are likely to be sufficient for the RBA to start easing in mid-2024.”