Jobs, jobs, jobs and the US question mark

_{Published on 21.11.2024}

In its global and domestic November Forward View outlooks, the NAB Group Economics team has provided commentary on the strength in the jobs market and tariff threats, while updating its growth forecasts and the outlook for interest rates.

In its domestic outlook, the NAB Economics team said a tight labour market in Australia and wage growth would likely remain above the level consistent with the RBA’s inflation target.

“October data showed that the labour force remains tight, unemployment remained stable despite slightly softer jobs growth and broader economic trends,” Head of Australian Economics Gareth Spence said.

The team currently expects the RBA to start cutting rates in May 2025 given the resilience of the local economy and, in particular, the labour market.

Other key insights offered in The Forward View – Australia for November include:

• Once the RBA starts reducing rates, we expect it will do so only slowly, with the cash rate not expected to move back to neutral (3.10%) until mid-2026. Even with an unemployment rate of 4.5%, the labour market would be close to full-employment, and with around trend GDP growth, and inflation only expected to reach the mid-point of the RBA’s target band by mid-2026, there will be no pressure on the RBA to move rates down quickly.
• The election of Donald Trump as US President is likely to lead to material changes in US policy, although when, and to what degree, is highly uncertain. A key exposure for Australia will be how possible tariff increases affect China and the flow through of likely lower global growth to commodity prices. One immediate impact has been for the AUD/USD, for which we have lowered our projections.

In the November Forward View – Global, NAB Senior Economist Gerard Burg, described the global economic impact of the election of Donald Trump as “consequential”.

“Given the high likelihood that he will significantly increase tariffs on imports into the US, we have made an assumption for forecasting purposes that there will be a 10ppt increase in the implied US average tariff rate starting in mid-2025 and phased in over a year,” Mr Burg said.

“We see tariff increases as having a negative impact on the global economy. This is not only from the direct consequences on trade but also through confidence and financial conditions channels. Rising uncertainty may mean that trade exposed businesses delay capital expenditure plans even ahead of tariff announcements.”

Other key insights offered in The Forward View – Global, November 2024 include:

• Last week we also raised our expectations for the level of the US fed funds rate – and now see the Fed easing at a slower pace. The change reflects the recent data flow and the assumed tariff increases. This may constrain the ability of other central banks, in particular emerging markets, to lower rates.
• We have lifted our growth forecasts for 2024 and 2025 from 3.1 to 3.2% – reflecting recent activity data and the UK/Japan fiscal changes – but lowered our forecast for 2026 to 3.0% from 3.2%. The latter reflects an allowance for US tariffs – while they are assumed to start impacting growth from H2 2025, in year-average terms the impact largely falls in 2026.
• With conflicts still underway in Europe and the Middle East, the possibility of China stimulus at some point, and the unknown timing and extent of US policy shifts, forecast uncertainty is even higher than normal.