Australian economy faces deeper slowdown as RBA readies fifth rate rise

Australia's economy is expected to slow further as the Reserve Bank of Australia (RBA) prepares for a fifth interest-rate increase, which would lift the cash rate to its highest level since 2008. Commonwealth Bank (CBA) economist Belinda Allen said the combination of the ongoing Middle East conflict, falling house prices and a more aggressive monetary stance could reduce real GDP growth to around 1% by mid-2025, roughly half of the previous forecast of 1.8%. Growth through 2027 is projected to edge up only to about 1.1%.

Allen noted that higher oil prices have been a key factor in revising the outlook, adding that expectations of a quick resolution to the Middle East conflict and a return to normal oil prices have not materialised. Brent crude has risen from roughly US$72 a barrel in early July to above US$110 in recent days.

National Australia Bank (NAB) chief economist Gareth Spence warned that unemployment may need to rise above current expectations to bring inflation back under control, citing recent RBA commentary. He projected the unemployment rate could climb from 4.7% to as high as 5.4% by the end of 2025, while growth would remain below trend at about 1% for the next year. CBA's own forecast is slightly more optimistic, seeing unemployment peak at 5.1%.

The property market continues to weaken. AMP chief economist Shane Oliver said house prices could fall up to 15% before stabilising late next year, with Sydney values already down 10% from recent peaks. He warned that a sharp correction could dampen consumer spending through the "wealth effect" and also curb homebuilding activity.

Union leaders demonstrated outside the RBA's Sydney offices as the rate hike approaches. Oliver cautioned that the probability of a recession could rise to as much as 45% if the RBA proceeds with the expected increase, noting uncertainty about the precise tipping point for the economy.