Global & Australian Forecasts – August 2014

Global growth remains moderate but monthly trade and industrial growth continues to slow. Economic conditions mixed between regions with solid upturns in the UK and US, weakness in Japan and signs of slowing in the Euro-zone. Emerging market economies still driving most global growth

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Global growth remains moderate but monthly trade and industrial growth continues to slow. Economic conditions mixed between regions with solid upturns in the UK and US, weakness in Japan and signs of slowing in the Euro-zone. Emerging market economies still driving most global growth with rapid Chinese growth, brighter signs in India but weakness in Latin America. Signs of improvement domestically with conditions up and confidence even better, but Q2 looking softer. Australian forecasts revised down in 2014/15 (3.1%), up in 2015/16 (3.2%). Official unemployment rate to track higher, peaking at 6½% by end 2014. Cash rate on hold until late 2015 but more risk of a cut.

  • We have trimmed our global forecasts to take account of the impact of default in Argentina on Latin American growth and unexpectedly soft Japanese exports and post-tax consumption which led us to trim 30 bps off our Japanese forecast. Elsewhere, solid growth numbers are coming from the UK and US but the Euro-zone presents downside risks (with soft recent business surveys and Q2 GDP in Italy and Belgium) to growth and a clear threat of deflation. The emerging economies now drive around 70% of global output growth but present a mixed picture. China’s growth remains robust, India’s has disappointed but could be about to pick up and East Asian economies are likely to remain subdued pending faster world trade. Overall, world growth in 2015 to rise to 3.6% (nearer trend) from a mixed and disappointing 3.1% in 2014.
  • Weak retail trade and net exports point to soft GDP growth in Q2. Employment continues to drift: jump in unemployment rate looks like quirk from ABS measurement changes (which probably added 0.2 points to unemployment). Partial indicators generally better: job ads and vacancies, business conditions, business confidence, orders and capacity utilisation all looking better. But headwinds remain, especially high AUD, declining mining investment and fiscal restraint.
  • Australian forecasts revised down in 2014/15 (3.1%, was 3.3%), up in 2015/16 (3.2%, was 3.0%). Official unemployment rate to peak at 6½% by end 2014 (was 6¼%) reflecting weaker growth and changes to ABS measurement. Cash rate on hold until late 2015 but more risk of a cut.

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