NAB’s World on Two Pages: October 2016

The bigger picture – A Global and Australian economic perspective.

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The Bigger Picture – A Global & Australian Economic Perspective

Global: Global growth remains sluggish and sub-trend. Despite signs of stabilisation in areas of the world where economic activity has been weak, there is little evidence of new growth engines that could pull economic growth out of the doldrums. Consequently, we do not expect much improvement in global growth, which should remain below trend. Weak growth and below target inflation allows central banks to keep rates historically low and the focus in fiscal policy is shifting away from austerity to wind back big public debts and towards how public sector investment can be increased. While global growth has been disappointingly sluggish it has at least proved resilient, continuing through numerous shocks – Brexit, 2015’s Chinese currency and share market volatility, and the early 2016 growth scare to name just three.

Australia: Real GDP forecasts for Australia are largely unchanged at 3.0% in 2016 and easing to 2.8% in 2017 and 2.6% in 2018. The unexpectedly high settlement for Q4 coking coal prices will provide a boost to Australia’s terms of trade, nominal GDP and government revenues, but is unlikely to be sustained. Business survey data is showing weakness in retail conditions, which implies some risks to our already moderate forecasts for real household consumption growth of 2¼-2½% in 2017 and 2018. The labour market outlook is key, but while we expect the unemployment rate to remain in its current range between 5½% and 5¾%, the recent softening in trend employment growth bears close watching. House prices in Sydney and Melbourne have re-accelerated, which should prevent any further RBA cuts this year barring an exceptionally low Q3 CPI outcome in late October. Further cuts in 2017 remain likely.

For more details, please refer to the attached document.

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