In his latest update, Stephen Koukoulas, Zagga’s Economist-in-Residence, highlights a period of economic uncertainty shaped by policy ambiguity, cautious sentiment, and uneven growth dynamics.
Policy uncertainty weighs on confidence
The recent Federal Budget has introduced a degree of uncertainty, particularly around proposed changes to capital gains tax. While other policy measures appear relatively settled, the lack of clarity around potential carve‑outs is contributing to hesitation across business and investment decision‑making.
Sentiment softens across households and businesses
Business confidence and conditions have declined in recent months, reflecting the cumulative impact of interest rate increases and higher fuel costs. Consumer confidence remains weak, with both households and businesses adopting a more cautious approach to spending and investment. This is contributing to a broader slowdown in economic momentum.
A “patchwork” economy emerges
Despite softer sentiment, the economy continues to show resilience in certain areas. Stephen describes this as the economy moving through a “patchwork period”, where:
- business investment remains relatively strong,
- net exports continue to support growth,
- household spending is softening,
- and, confidence remains subdued across both consumers and businesses.
Housing shifts into a softer phase
Recent data indicates housing prices have stabilised or declined in key markets such as Sydney and Melbourne, with the pace of growth slowing in previously strong markets like Brisbane, Perth, and Adelaide.
At the same time, building approvals remain elevated, supported by policy initiatives and infrastructure investment. This places the housing sector in a transitional phase, balancing softer prices with sustained construction activity.
Rates likely on hold as impacts flow through
The Reserve Bank is expected to hold interest rates steady in the near term, recognising that recent increases are still working their way through the economy. Future decisions will remain data‑dependent, particularly with regard to inflation, labour market conditions, and global influences.
Conclusion
Growth is moderating rather than contracting, inflation remains above target, and uncertainty around policy continues to influence confidence.
As Stephen summarises, “it’s weaker, but not catastrophic.”
The result is a more cautious, uneven environment as the economy moves through this transitional phase.
Stephen Koukoulas is Managing Director of Market Economics, having had 30 years as an economist in government, banking, financial markets and policy formulation. Stephen was Senior Economic Advisor to Prime Minister, Julia Gillard, worked in the Commonwealth Treasury and was the global head of economic research and strategy for TD Securities in London.
