Global & Australian Forecasts – March 2016

We are not expecting any acceleration in global growth in 2016.

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Key Points:

  • We are not expecting any acceleration in global growth in 2016 – with another year of growth a touch below 3% (very sub-trend). We have modestly cut our 2016 growth numbers to take account of a deeper than expected recession in Brazil. A combination of the winding down of the current phase of market instability – which should limit the scale of the damage caused to household wealth, business appetites for investment and hiring and bank willingness to lend – central bank willingness to support demand , together with lower commodity prices and data that shows the world economy is still growing (modestly) underpin our view that we will see downbeat but continuing growth. However there remains the real risk of further periods of market volatility and hence downside risks to our forecasts. To achieve sustainably faster growth would require serious reforms (for which there appears little appetite). In the near term Australian MTP growth is likely to remain around 4 ¼%.
  • In Australia, the recovery across the non-mining economy remains on track despite elevated risks. Q4 GDP figures revealed an economy running at 3% y/y, and our estimates suggest non-mining GDP was growing at near 4% y/y. Meanwhile, business conditions are resilient in the face of an uncertain global backdrop and weak commodity prices, although the divergence between mining and non-mining states is becoming more pronounced. The rotation towards services activity continues, and is supporting the labour market. National income growth however will remain weak as the terms of trade declines and low wages growth will cap household consumption growth. Overall, real GDP forecasts are largely unchanged with a pick up from an average 2.5% in 2015 to 2.7% in 2016 and 2.9% in 2017, although our newly-extended forecasts imply some loss of momentum in 2018 to 2.5%. The unemployment rate will ease gradually to just above 5½% by end-16 and then remain broadly steady. Domestic conditions suggest the RBA is very much on hold but retains an easing bias amidst global risks. Key focus will be on whether the non- mining sector maintains momentum and on the future path of the unemployment rate.

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