This article is part of our 2024-25 Federal Budget series. To view all articles, see The Price is Right: 2024-25 Budget or the bottom of this page.

Four years of economic turmoil and continued uncertainty

The first four years of this decade have tested the economy and the resilience of all Australians: floods and bushfires, a once-in-a-century global pandemic, followed by the most significant international energy crisis in 50 years.

The combined impact of these events resulted in economic consequences on supply chains, energy prices, inflation and interest rates.[1] These events may seem like distant memories but they continue to impact the economy. 

Australia is continuing to face ongoing global uncertainty stemming from persistent inflation in North America; growth slowing in China and other major economies; the United Kingdom and Japan both finishing the year in recession; and tensions rising in the Middle East and Eastern Europe.

Key statistics

• GDP – Real GDP growth of 1.75% in 2023–24. Growth is expected to remain subdued at 2% in 2024-25 and 2.25% in 2025-26.
• Inflation – The Government expects inflation to be within target by the end of 2024. The RBA’s most recent view is that inflation is not expected to return to the target range of 2-3% until the second half of 2025, and to the midpoint in 2026. Global inflation remains elevated and is not expected to return to central bank targets until 2025.
• Unemployment – The unemployment rate remaining near its 50 year low at 3.8% - the participation rate is near its record high at 66.6%. Unemployment is expected to rise but remain below pre-pandemic levels.
• Wages – Nominal wages over 2023–24 have grown at their fastest rate in nearly 15 years. It is expected to soften to 3.25% in 2024-5 and 2025-6. Real wages are expected to continue to pick up and grow by 0.5% the year to the June quarter 2024.
• Business investment – growth of 8.3% last year.

Inflation and cash rate

Inflation is moderating but still high compared to the target range of 2 to 3% required by monetary policy. 

Michelle Marquardt, ABS head of prices statistics:

“Annually, the CPI rose 3.6 per cent to the March 2024 quarter. While prices continued to rise for most goods and services, annual CPI inflation was down from 4.1 per cent last quarter and has fallen from the peak of 7.8 per cent in December 2022.” [2]

Inflation has increased the cost of living, as Australian households are paying more to purchase the same goods and services. 

The surplus in 2022–23 took some pressure off inflation, allowing the Government to fund their priorities and reduce debt interest. All encouraging signs, but the Government acknowledges it still needs to reduce inflation further and faster. The budget measures seek to ease inflation and not add to it.[3] 

As at 7 May 2024, the cash rate is currently at 4.35%. The RBA last raised the cash rate on 7 November 2023 by 0.25% to return inflation to the target range in a reasonable timeframe. The price of goods is moderating but services remain inflated.[4]

Overall, higher interest rates have led people to cut back on spending. This is slowing economic growth and bringing demand into better balance with supply.

References:

1. Prime Minister, Anthony Albanese, A future made in Australia, 11 April 2024.
2. Australian Bureau of Statistics (ABS), CPI rose 1.0% in the March 2024 quarter, 24 April 2024.
3. Treasurer, Jim Chalmers, Annual inflation almost halved under Labor, 24 April 2024.
4. RBA, Media Release, Statement by the RBA: Monetary Policy Decision, 7 May 2024.
   

If you have any questions about any aspects of this year's budget, please email us or phone our team on 02 9899 3044.