The 2024 outlook for Australian businesses

1. Near-term challenges

On the global stage, growth will likely slow further in the first half of the year. However, with inflation coming back down, this means central banks are ready to pivot, and can ease if conditions weaken.

The story is similar in Australia. There is likely further slowing to come this year, after a relatively weak end to 2023. Still, as it currently stands, the Australian economy is positioned to improve later this year and as we move into 2025.

“Australia has performed very well over the past couple of decades. We really are an economy that has punched above our weight,” says Chief Economist at Macquarie Group, Ric Deverell.

“There are some challenges in the near term - and in particular, inflation is lagging the rest of the world on the way down,” says Deverell.  

“I think we are very well placed,” he adds. “But it’s just going to be a tricky period for the next six or nine months.”

2. Cash rate cuts are on the cards

Inflation will again be a key driver of the Reserve Bank of Australia’s (RBA’s) decision making this year, meaning further cash rate rises can’t be entirely ruled out. That said, a fall in the cash rate is on the cards for the second half of the year.

“The cash rate is going to be all about inflation. If inflation comes down as I expect, the RBA are probably finished hiking, and will probably be easing in the second half of the year,” says Deverell.

“But if inflation goes a bit higher still, we might have to have another hike or two,” he adds.

3. Patterns to repeat with residential property

It has been an unusual couple of years in Australia’s residential property market. When the RBA began hiking rates, house prices fell. Then, in spite of the higher rate environment, prices went up substantially as population growth resumed strongly in 2023.

Population growth slowing back to trend means those gains could stall, but a big fall is unlikely in 2024. Unlike the strong dwelling price gains of around 8% in 2023, at this stage, a modest increase is more likely this year. 

Though we tend to talk about the Australian property market as one entity, prices move differently state by state, and the same is likely again this year.

“We had prices rebound really substantially in Sydney after the weakness in 2022. Whereas in Melbourne, the increase was much more moderate. Western Australia was booming, whereas Hobart has been quite soft still,” says Deverell. “My guess is a lot of the patterns we saw in 2023 will repeat over 2024.”

4. Softness, and resilience, in the commercial property market

Though 2023 was a relatively tough year for the commercial property market, it was not as bad as first feared.

“If you went back 12-18 months, the outlook on the horizon was quite scary,” says National Head of Property Lending at Macquarie Bank, Laurence Hart. “The unwind has been quite orderly.”  

There are a range of moves in the pipeline for commercial property in 2024. Hart outlines three key ones to watch:

The cash rate spurs activity

What’s important with the cash rate is what happens in the back half of the year. If the cash rate falls as we expect, that in itself can prompt activity in commercial property.”
 

Price softness continues

I can’t see a quick bounce back in the market,” Hart says. “Particularly over the next six months, I expect continued softness in commercial property prices.”
 

Sales volumes stay low

If we look at Q3 last year, sales volumes were well below trend,” says Hart. “Again, that’s not going to turn around that quickly.”

5. A loosening labour market

Unemployment in Australia is still very low, but at the margins the labour market is just starting to loosen now, which will play a role in bringing inflation down. The unemployment rate is edging higher and the number of job vacancies has dropped. This loosening is likely to continue in the year ahead.

“I think the labour market has already eased a bit and already it is becoming easier for businesses to find staff,” says Deverell.

“I do think unemployment probably moves into the fours this year,” he adds.

6. Inflation lagging on the way down

With inflation, Australia lagged the world on the way up, and now it’s lagging on the way down. Though the peak is in, we’re yet to see a major fall.

Services inflation is remaining particularly sticky, which is correlated with wages growth. A looser labour market is one factor that could bring services inflation back down. By comparison, inflation has already washed through the system in the goods part of the economy.

“In the rest of the world, inflation has now come back down. In Australia it has peaked but we haven’t seen a big fall yet,” says Deverell. “I think it will happen, but we are lagging still.”

Your business needs 

We hope our insights help support your ambitions, as we move through 2024. At Macquarie Business Banking, we’d welcome the opportunity to speak with you as you navigate this shifting environment.