Global & Australian Forecasts – October 2013

Global upturn continues and forecasts little changed – but growth momentum has slowed a touch through mid-2013. Composition of global growth still shifting toward advanced economies with mixed trends in emerging markets.

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Global upturn continues and forecasts little changed – but growth momentum has slowed a touch through mid-2013. Composition of global growth still shifting toward advanced economies with mixed trends in emerging markets. Australian business confidence jumps to 3½ year high (mainly on politics) but activity still subdued. Outlook unchanged with below-trend GDP growth still expected in 2014 and unemployment rising to 6¾% by end 2014. RBA on watch till early 2014 when rising unemployment and falling inflation force another cut. No rate increases until 2015.

  • After a period where the data showed accelerating growth in the big advanced economies, the latest numbers have been more mixed. Although an upturn is still under way, the pace of industrial growth and business sentiment in some big advanced economies has stopped improving. Trends in the emerging market economies have been mixed with Chinese growth showing signs of stabilising, India remaining weak and signs of a very modest improvement across emerging Asia and Latin America. Global growth forecasts remain at 3% this year and 3½% in both 2014 and 2015. We are assuming that US political uncertainties over its government shut-down and debt ceiling do not have a marked impact on its rate of economic growth – this assumption will clearly need to be carefully monitored as a worse case scenario would have significant global ramifications for both growth and especially financial markets.
  • The NAB business survey highlights a surge in business confidence in September, though this is yet to filter through to stronger activity, with business conditions still poor. The sentiment outcome appears to predominantly reflect political changes but lower rates and AUD as well as strengthening asset prices (especially housing) may have helped. Nonetheless labour market forward indicators remain poor.
  • GDP forecasts are unchanged this month: GDP growth to soften to 2.3% in 2013 before gradually rising to 2.5% in 2014 and 2.9% in 2015. Unemployment to exceed 6% by end 2013 and reach 6¾% by end 2014. Consistent with this soft outlook, core CPI expected to edge down to 2.2% by end 2013, lifting modestly to 2.5% by end 2014. RBA appears less dovish on the back of better confidence readings and improving asset prices. But AUD remains elevated and the labour market continues to deteriorate. We still see a need for another 25 bp rate cut – probably in Feb (was Nov), allowing the RBA time to pause and watch the data.

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