Unemployment is tipped to edge up to 4.5 per cent by late 2025, from 4.1 per cent now, while household consumption – which went backwards in the June quarter – is expected to remain soft. Much of the stage 3 tax cuts, which some economists feared would push up inflation, are forecast to be saved while consumers are changing their shopping habits to seek out bargains.
Bullock said despite unemployment being likely to grow, the labour market remained tight.
“It’s not that people will be tossed out of work like in a recession, which is where we see a sharp rise in the unemployment rate,” she said. “It just means that for people coming into the labour force, perhaps it takes them a little longer to get a job than in the past.”
Government spending, including support through aged care and the National Disability Insurance Scheme, continues to add to economic growth, but critics have argued fiscal spending has delayed progress towards lowering inflation. The bank believes public spending is likely to remain “robust” over coming years.
While it is tipped to drop off in the near term, the bank said this was likely to be temporary “given investment spending announced in government budgets and the large pipeline of engineering work yet to be done”.
Business investment is tipped to flatline by year’s end before starting to improve modestly.
The bank noted that population growth was likely to ease a little quicker than it had expected, partly due to the federal government’s changes to foreign student visas. It argued that the absence of migrants would affect the ability of the economy to supply the goods and services demanded by residents.
“This slowing in population growth is expected to weigh on GDP growth from mid-2025,” it said.
“However, it will also reduce the economy’s supply capacity, such that there will not be a material effect on the degree of spare capacity in the economy and therefore inflation.”
AMP chief economist Shane Oliver said an interest rate cut by Christmas was still a chance if unemployment spiked and the next monthly inflation figures showed a further sharp fall in underlying price pressures.
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But he said a rate cut in February remained most likely, arguing it was unlikely the RBA would have to wait until May to be confident enough about inflation before easing monetary policy.
Deloitte Access Economics partner Pradeep Philip warned interest rates had already taken effect and needed to be wound back.
“Like a cautious punter stubbornly backing the favourite as the odds shift under it, today’s monetary policy decision shows the Reserve Bank is unwilling to walk away from high interest rates, even as the case for a rate cut continues to make up ground,” he said.
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