S&P cuts Australia’s 2022 GDP forecast to 3.6% from 4% previous

In its latest economic assessment for the Asia-Pacific region, S&P Global offers a dire growth outlook. The global rating agency has cut Australia’s 2022 GDP forecast while revising the RBA’s policy expectations.

Key quotes

“Growth is easing in the region as export demand softens in line with an expected slowdown among major global economies.”

"However, the recovery in domestic demand from COVID is largely intact, so overall growth has softened only modestly."

"This is especially so in Australia, India, Japan, Indonesia and the Philippines where growth is more domestic demand-oriented."

“Inflation has risen across the region, largely driven by higher energy and commodity prices but not by as much as in the US and Europe.”

“S&P has cut its Australia 2022 growth forecast to 3.6% (from 4% previously), 2023 projection is 2.8% (2.7% prior forecast).”

“Expect inflation to average 5% in Australia this year, back to 3% in 2023 and 2.5% in 2024.”

Expect further OCR “hikes to 1.75% this year, 2.5% in 2023, 2.75% in 2024 while a cut to 2.5% in 2025.”

Market reaction

AUD/USD remains vulnerable near 0.6920 on the above headlines, modestly flat on the day.