Global & Australian Forecasts – November 2013

Global upturn continues and forecasts little changed. Advanced economies seeing faster recovery after their prolonged weakness post 2008/09 recession. Mixed trends across emerging markets with solid Chinese growth but disappointing outcomes in India.

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Global upturn continues and forecasts little changed. Advanced economies seeing faster recovery after their prolonged weakness post 2008/09 recession. Mixed trends across emerging markets with solid Chinese growth but disappointing outcomes in India. Australian business confidence falls back as conditions undershoot again. Outlook little changed with below-trend GDP growth still expected in 2014, but unemployment expected to take longer to rise. RBA expected to watch data before cutting again in May (was Feb). Unemployment the key as inflation risks off the menu.

  • Although the hard data on world trade and industrial output show activity growing by a sub-trend 2% yoy, overall economic activity is expanding more quickly on the back of improved service industry performance. Global growth rose from 2.4% to 2.8% between March and June quarters and we are expecting 2.9% for 2013 overall, increasing to 3.5% next year. The national accounts and business surveys show a quickening pace of growth in the big advanced economies with the UK and Japan the standout performers. The US’s moderate recovery continues and Euro-zone output has started to slowly recover after a long period of weakness. The emerging economies present a mixed picture with solid outcomes in China, a disappointing record and outlook for activity in India and only moderate growth across Latin America and the export-oriented economies of East Asia.
  • NAB business survey showed a sharp fall in business confidence in October after rising to a 3½ year high in September, with business conditions still poor. The level of confidence remains relatively elevated, possibly supported by low interest rates and improving asset market trends. Forward indicators generally deteriorated, paring back earlier gains and implying a continuing soft outlook for domestic demand.
  • GDP forecasts are broadly unchanged this month: GDP growth to soften to 2.3% in 2013 before gradually rising to 2.4% in 2014 and 2.9% in 2015. Unemployment to nudge 6% by end 2013, a touch above 6½% by end 2014, before easing to 6.3% by late 2015. Given the soft outlook, core CPI is expected to edge down to 2.3% by end 2013 and 2.4% by end 2014. Rising asset price trends and higher confidence is likely to see RBA wait to see how labour market trends play out before cutting cash rate again. We expect next rate cut in May (was February), by which time labour market conditions likely to have deteriorated sufficiently to prompt further policy easing. Unemployment the key to timing and extent of further cut(s).

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