Morgan Stanley has recently quoted a 12-month price target of 7,350 points for the ASX 200 Index, which indicates a high probability of index up-rise of 3.5%, plus the potential dividends and franking credits. The outlook for capital growth comes for the ASX 200, amid the expectation of an economic slowdown.
Currently, market movements heavily rely on two major factors: inflation data and a new interest rate regime. Let’s understand the expected upcoming scenarios for the following developments as follows:
Australia's central bank remains cautious from an inflationary point of view. After a series of consecutive and aggressive rate hikes, the board decided to hold rates in its quarterly statement of monetary policy for November 2023. However, the fight against inflation will continue, so a hike was needed to ensure a slowdown in inflation. The prediction for a high economic growth rate and employment remains very subtle in the Australian economic scenario for the future. Consumer price inflation closed at 5.4% in the third quarter, down from a peak of 7.8% last year, but was still higher than expected and well above the central bank’s target of 2–3%. The stubborn inflation in the service sector led the RBA to revise its forecasts for both CPI and core inflation. The projected inflation measures could see the inflation rate at 3.25% by the end of 2024 and just below 3% by late 2025, both around a quarter point higher than their previous forecast.
The Australian economy had stayed more resilient than previously estimated, on account of rapid migration and a strong government’s infrastructural capex. The economy was now expected to expand at an annual growth rate of 1.5% this quarter, up from 1% previously. Growth for the end of 2024 was lifted by a quarter points to 2%, while the forecast for late 2025 stayed at 2.25%. The data for unemployment was seen peaking at 4.25% in 2024, rather than the 4.5% as estimated earlier. The current jobless rate of 3.6% is near its lowest since the 1950s. The past rapid increases in interest rates, in conjunction with stubborn inflation, have caused the consumption rate to fall and erode real incomes.
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