Summary: GDP forecasts raised significantly again; core inflation rates unchanged; jobless rate expected to fall at faster rate over 2021, 2022; headline inflation forecasts raised slightly; forecasts will not give RBA “sufficient comfort” economy set to achieve full-employment conditions.
The Statement on Monetary Policy (SoMP) is released each quarter and it is closely watched for updates to the RBA’s own forecasts.
In February’s SoMP, the opening sentence of the “Outlook” section stated, “The outlook for the global economy has improved since the November Statement on Monetary Policy.” As far as Australia was concerned, the “recovery in the domestic economy has been sustained over recent months…”
May’s Outlook opened with: “The global economic outlook has firmed this year because of progress in vaccinations and additional fiscal support in some economies.” On domestic matters, it stated, “The Australian economy is transitioning from recovery to expansion phase earlier and with more momentum than anticipated.”
GDP growth rates in the early periods of the forecasts have again been raised significantly while later periods’ forecasts have remained unchanged. The RBA’s forecast GDP growth rate for the year to June 2021 (see table below) has been increased by 1.5% points and the forecast for the year to December 2021 has been raised by 1.25% points. The growth rate for the year to June 2022 had been trimmed by 0.50% points to 3.50% in the February SoMP but that has now been reversed. “The starting point for the forecasts is stronger than previously expected, following recent outcomes both for output and the labour market, and growth momentum in coming quarters is also a little stronger.” The RBA expects growth to be “broad-based” but led by household and government expenditures.
The RBA’s underlying inflation forecasts remained unchanged. However, “improvement in the labour market is expected to result in labour market spare capacity being absorbed a little more quickly than previously expected. This should put some upward pressure on wages growth over time.”