Global & Australian Forecasts – August 2015

Global growth is running below trend limiting the pace of expansion in commodity demand. Output has been growing faster recently in some of the big advanced economies (notably the US and UK) and the Greek crisis has had little impact on activity across the rest of the Euro-zone.

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Key Points:

  • Global growth is running below trend and looks set to remain lacklustre, limiting the pace of expansion in commodity demand. Output has been growing faster recently in some of the big advanced economies (notably the US and UK) and the Greek crisis has had little impact on activity across the rest of the Euro-zone. Stagnation in growth across the emerging market economies, the principal drivers of recent global output expansion, is the main area of disappointment and reflects the sluggish growth in world trade volumes and falling commodity prices. The bursting of the share market bubble will probably only worsen China’s trend slowdown, recent Indian data is again disappointing and there is weakness across large parts of East Asia and Latin America –not a good environment for commodity prices.
  • The Australian economic outlook remains mixed and patchy. Mining investment is declining sharply, public spending is limited and national income growth is weak amidst declining commodity prices. Meanwhile, monetary policy is highly stimulatory and the AUD is acting as a shock absorber, with tentative evidence of further recovery in non-mining activity. House prices are growing strongly, particularly in the eastern states, and consumer spending has picked up recently. Non-mining investment remains the missing ingredient – with firms demanding very high rates of return before investing – 13% according to our survey. Our GDP forecasts are marginally stronger than last month – 2.4% in 2014/15, 2.8% in 2015/16 and 3.2% in 2016/17 – with domestic demand weak and net exports making a large contribution. The unemployment rate hovers near the current 6¼% before easing slightly into 2016/17. With rates already low, this outlook is not sufficiently weak to prompt further monetary policy easing. Equally, expectations for elevated unemployment imply that rate hikes are unlikely until the recovery in non-mining activity is more entrenched (late 2016 on our view). Risks emanating from offshore are overwhelmingly to the downside, while stronger local data if sustained suggest some modest upside risk.

For further details, please see the attached documents.

Global & Australian Forecasts – August 2015 (PDF, 658KB)