Global & Australian Forecasts – April 2014

Global economy growing around trend but signs in early 2014 that accelerating growth phase has ended. Mixed conditions across regions with advanced economies providing more of global output expansion as Chinese growth rate trends down.

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Global economy growing around trend but signs in early 2014 that accelerating growth phase has ended. Mixed conditions across regions with advanced economies providing more of global output expansion as Chinese growth rate trends down. Inflation still low in big advanced economies, underpinning outlook for low interest rates, but price pressures persist in many big emerging economies (excluding China). Australian business conditions remain muted and confidence still in decline. Dwellings likely to strengthen but expected tight Budget to add to mining headwinds. Labour market signals mixed. Local economy forecasts unchanged with rate cut still expected in late 2014 with unemployment to edge up.

  • The upward trend in the advanced economy business surveys faltered toward the end of 2013 and this has continued into early 2014. Some of this reflected the disruptive impact of bad weather on supply chains but the March business survey results suggest that an underlying levelling out in the pace of growth has also occurred. Although unemployment rates and margins of idle capacity are trending down in the big advanced economies, they remain high by historical standards – allowing central banks to persist with historically low policy rates even as their economies pick up. Conditions remain very mixed in the emerging economies with Chinese growth slowing, Indian economic performance remaining disappointing and subdued activity growth across the rest of emerging East Asia and Latin America. High inflation remains a real problem in many of these economies.
  • Australian business conditions remained soft in March and there are signs the weak environment is taking a toll on business confidence, which continues to slide. Labour market indicators are weak and, although better than in the depths of mid-2013, still look too soft to prevent a further deterioration in the labour market. Growth is likely to be supported by dwelling investment, growing minerals and energy exports and declining capital goods imports. Business investment, government demand and welfare support should provide significant headwinds.
  • Domestic forecasts are unchanged. Jobless growth expected to continue through 2014 with unemployment rate still to reach 6½% by end-2014 when a final rate cut predicted (possibly November).

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