A quarterly outlook for Australian businesses

Three moves that matter for Australian businesses

For many months now, news about the economy has been focused on the record books. Australia has reached its tightest labour market since the 1970s, the cash rate has increased at its fastest pace since the 1990s, and rate of inflation has hit a three-decade high. 

“At the business level, cost pressures are ongoing, as leaders manage inflationary pressures, rising interest rates, and the cost of finding and retaining staff in a competitive labour market,” Associate Director at Macquarie Bank, Richard McCabe says. 

This quarter, there are similar themes. The unemployment rate remains historically low, the cash rate could still rise after a rapid run of hikes, and inflation continues to be uncomfortably high for the Reserve Bank of Australia (RBA). 

However, a look beneath the surface of these three important areas for Australian businesses shows a shift is in play – their trajectory is changing as the economy slows. 

1. A (gradually) loosening labour market 

Though the battle for talent remains a fierce one, there are signs that the labour market in Australia is easing.

“Under the surface, it is starting to loosen a little bit,” says Macquarie Group Chief Economist Ric Deverell. “The number of job vacancies has fallen, and we think that as the year progresses, that probably means that unemployment will start moving very gradually higher.” 

Nevertheless, finding and retaining talent remains a key business challenge, says McCabe. 

“We hear regularly that people shortages, and salary expectations, are a primary concern and focus for business leaders.”

You can read more about how to attract and retain top talent here. 

2. The cash rate run is nearing its end

Calling the end of cash rate hikes is proving a delicate task, as the RBA tightly monitors persistently high inflation data month to month. 

However, with economic growth in Australia slowing, the RBA is likely nearing its peak.  

“The Australian cash rate has increased substantially in the past year. We think it’s probably near its peak now,” says Deverell. 

“But the RBA has now moved to what we call data watching mode and that literally means that if inflation doesn’t come down and growth stays strong, they will probably have to hike a little bit more.” 

3. Inflation – peaked, but persistent 

Inflation has been a key, if not primary, focal point at successive RBA board meetings. Though Australia is faring better than some advanced economies when it comes to inflationary pressures, the experience overseas may be a sign of the path ahead at home. 

“Inflation in Australia has really followed the rest of the world by about six months,” says Deverell. 

“What we’ve seen in the United States is that core inflation, particularly services inflation, has proven very sticky on the way down,” he says. 

“So, my expectation is that the peak is in for Australia, but that it will take some time for it to come back to the RBA’s comfort level.” 

Your business needs 

We hope our insights help support your ambitions, as we move through the second half of 2023. At Macquarie Business Banking, we’d welcome the opportunity to speak with you as you navigate this shifting environment.