Australian Economy Slows Down Amid High Borrowing Costs and Sticky Inflation
The Australian economy has hit a speed bump, with growth slowing down in the third quarter due to elevated borrowing costs and persistent inflation. According to the Australian Bureau of Statistics, the real gross domestic product (GDP) rose by a mere 0.3% in the three months leading up to September, falling short of the expected 0.4% increase.
Consumption Takes a Hit
The slowdown in consumption has been a major contributor to the sluggish growth, with households feeling the pinch of higher borrowing costs. The Reserve Bank of Australia’s (RBA) aggressive tightening campaign, which has seen interest rates rise by 425 basis points since May 2022, has taken its toll on the economy.
Inflation Remains Sticky
Despite a slight decline in headline consumer price inflation to 2.8%, core inflation remains above the RBA’s target range of 2% to 3%. The core inflation rate, which excludes electricity and automotive fuel prices, stands at 3.5%, a level deemed “too high” by RBA Governor Michele Bullock.
Monetary Policy to Remain Restrictive
Bullock has reiterated that the RBA will maintain its restrictive monetary policy stance until it is confident that underlying inflation is on track to reach the midpoint of its target range, namely 2.5%. This means that interest rates are likely to remain unchanged at the RBA’s next policy meeting on December 10.
Growth Prospects
While some experts predict a slow pickup in GDP growth in the coming quarters, others are more cautious, expecting the economy to endure below-trend growth in the near term. The RBA’s latest forecasts suggest that trimmed mean inflation will ease gradually to 2.5% by late 2026.
A Challenging Road Ahead
As the Australian economy navigates the challenges of high borrowing costs and sticky inflation, households and businesses alike will need to adapt to a new reality of slower growth and higher interest rates. With the RBA committed to keeping inflation in check, the road ahead looks uncertain, but one thing is clear: the economy will need to find a way to overcome these hurdles to achieve sustainable growth.
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