Global & Australian Forecasts – December 2015

In Australia, Q3 GDP figures were consistent with our view that the recovery across the non-mining recovery is broadening, and recent business survey results suggest this momentum continued into Q4.

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Key Points:

  • Although some of the risks hanging over global markets have abated, recent global economic growth and the outlook remains lack-lustre. Global growth remains stuck around the 3¼% seen since mid-2012 as lower commodity prices, capital flow reversals and central banks focused on getting inflation back toward target take a toll on the pace of expansion in the big emerging market economies that have underpinned most global growth.
  • In Australia, Q3 GDP figures were consistent with our view that the recovery across the non-mining recovery is broadening, and recent business survey results suggest this momentum continued into Q4. Despite this, downgraded commodity price forecasts have prompted a lowering of our real GDP growth forecasts, and another 11½% drop in the terms of trade in 2016 will weigh further on national income. Real GDP is now forecast to pick up more gradually to 2.7% in 2016 and 3.0% in 2017 (previously 2.9% and 3.2% respectively). Our unemployment rate forecasts are only a fraction higher however – as the composition of growth tilts towards more labour-intensive sectors – easing gradually to 5.8% by end-16 and 5.7% by end-17. At this stage, the RBA has indicated that providing “stable” monetary policy and allowing greenshoots to flourish may be more helpful for the economy. An easing bias does remain amidst low inflation, weak commodity prices and concerns about trading partner growth. But at this stage, the central bank is unlikely to ease further absent a global shock, a surprise deterioration in the non-mining economy or a sharp re-appreciation of the AUD.

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