The one telling sign that interest rates won’t rise again – in a major win for Aussies with mortgages

Australia faces a sluggish year for economic growth, which the Organization for Economic Co-operation and Development warns could be even more subdued if inflation proves stubborn or the Chinese economy slumps.

The OECD’s latest forecasts for Australian economic activity are largely unchanged from previous forecasts, with GDP growth set to slow from 1.9 percent in 2023 to 1.4 percent in 2024.

In 2025, the economy is expected to recover and grow by 2.1 percent.

The OECD also notes that interest rates are expected to remain at 4.35 percent and will remain at that restrictive level until inflation begins to fall convincingly, with cuts expected in the third quarter of 2024.

The think tank expects that higher interest rates and inflation will weigh on housing investments and on the expenditure of households without large savings buffers.

“Continued strong growth in the working-age population and higher exports, as the number of foreign students continues to recover, will partially offset these headwinds,” the report said.

Inflation is already moderating and the OECD expects it to return to the Reserve Bank of Australia’s two-three target in early 2025, slightly ahead of the central bank’s own forecast for end-2025.

“Continued inflationary pressures or a sharper than expected slowdown in China pose downside risks to GDP growth,” the OECD warns.

The organization has also revised its suggestions for improving the country’s finances as the country manages an aging population and a climate transition, as outlined in a study last month.

Cuts were both proposed, such as increased patient care in primary care and preventive health care policies, as well as tax reforms.

Getting more out of the goods and services tax and further reducing pension concessions were put forward as suitable options to increase revenues.

The role of immigration in the labor market was also mentioned, with Australia urged to consider making the influx of skilled migrants more responsive to the changing needs of the industry.

Treasurer Jim Chalmers said Australia is facing challenging global conditions from a position of strength, with a resilient labor market and good prices for exports.

The Albanian government’s economic agenda is consistent with the OECD’s key recommendations for advanced economies, including investing in our people and their skills, broadening and deepening our industrial base, and embracing the opportunities of the net zero’ transformation and digitalization,” he said.

The report also says the federal government’s fiscal policy will have a “somewhat shrinking impact on economic growth” over the next two years.