Global & Australian Forecasts – March 2014

Global upturn continues and forecasts little changed. Advanced economies seeing recovery after their prolonged weakness post 2008/9 recession. Mixed trends across Emerging markets with gradual slowing in China and uncertainty over speed of Indian rebound.

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Global upturn continues and forecasts little changed. Advanced economies seeing recovery after their prolonged weakness post 2008/9 recession. Mixed trends across Emerging markets with gradual slowing in China and uncertainty over speed of Indian rebound. Australian domestic indicators better, with retail stronger, asset prices up and weaker AUD. May imply turning point near, but labour market and forward indicators still weak and economy still multi-speed. Outlook little changed but combination of better near term business conditions and the unexpected CPI spike delays timing of RBA cut from May to late 2014 (November).

  • Business surveys and partial data on trade and industrial output show moderate global economic growth continuing through to the end of 2013. While the pace of growth in the big emerging economies still easily outpaces that of the G7 advanced economies, it is the latter that drive the expected acceleration in global growth from 3 to 3½% between 2013 and 2014. With advanced economy output well below its pre-crisis trend, there is still quite high unemployment and spare capacity. This has curbed inflationary pressure and allowed central banks to keep their policy interest rates historically low. These short-term interest rates are expected to stay low in the main advanced economies through next year, even as their economic growth accelerates.
  • More positive economic indicators, including NAB business conditions (jumped to highest level in 2½ years), hold out hope that a turning point may be near. Improving asset prices and a depreciating AUD may help bolster consumer spending and exports. Stronger housing approvals may also be supportive in the near term. Also there are signs that household risk appetite is increasing, but the labour market still weak and will remain a headwind as labour-intensive mining investment peaks. Other forward indicators generally still weak, including NAB survey measures such as orders, capacity utilisation and capital expenditure.
  • The combination of near term better business conditions and (especially) the unexpectedly strong Q4 underlying inflation print has caused us to move our next rate cut call from May to November. We do not expect a rate hike until late 2015. Our expected track for the AUD has been revised down marginally. Our forecasts are broadly unchanged: GDP for 2013/14 now 2.5% (unchanged) and 2014/15 now 3.0% (was 2.9%). Unemployment rate still to peak at 6½% in late 2014.

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