The World on Two Pages – October 2015

We are still forecasting little to no pick up in the pace of global growth and our domestic forecasts are unchanged this month, with real GDP expected to expand by 2.4% in 2015/16 and 3.1% in 2016/17.

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The Bigger Picture – A Global and Australian Economic Perspective

Global: Global growth remains sluggish and below trend and, unlike the IMF, our forecasts do not envisage much pick-up in the next couple of years. Emerging markets being impacted by falling commodity prices, the prospect of higher US interest rates, a build-up in debt and uncertainty over the pace of Chinese growth weigh on sentiment. By contrast, growth in the advanced economies picked up in mid-2015. We are still forecasting little to no pick up in the pace of global growth, which should remain just over 3% through the next couple of years, a disappointing sub-trend performance.

Australia: The ongoing high level of business conditions and trend improvement in key leading indicators supports our view of a gradual recovery in the non-mining economy – buoyed by low interest rates and the lower AUD. Our domestic forecasts are unchanged this month, with real GDP expected to expand by 2.4% in 2015/16 and 3.1% in 2016/17. The unemployment rate remains elevated for an extended period, but does ease to 6% by end 2015/16 and to 5¾ by end 2016/17, given the structural shift back towards more labour-intensive sectors. There remain clear downside risks from offshore, and weak commodity prices and falling mining investment will remain a drag. However, the case for further policy easing on purely domestic grounds is limited and we view market pricing for another 25bp cut over the coming 6 months as overly pessimistic.

For more details, please refer to the attached documents.