Global growth forecasts unchanged. Activity still sluggish but set to accelerate in second half of 2013. Financial markets digesting latest Euro-zone crisis (Cyprus) and new Japanese monetary policy. Emerging markets still main contributor to global growth but the big advanced economies should see resumption of moderate upturn later this year. Australian economic and financial outlook broadly unchanged with room for two rate cuts in 2013 to assist recessed parts of the economy. Timing very fluid – house price increases could delay and much depends on unemployment path.

• Renewed Euro-zone instability has taken a toll on global equity markets, which had strengthened quite markedly since late 2012, especially when compared to global economic activity and commodity markets. While latest data on world trade and industrial output is far from strong, it is a little better than the virtual stagnation shown through much of 2012. Business surveys in the advanced economies also show a lift in sentiment over future output. Global growth to pick up in H2 2013, before rising to an above-trend 3.9% in 2014 as recessions end in Europe, Japan reflates and the big emerging market economies gather speed.
• While there are signs the Australian economy is strengthening, lower interest rates may need more time to fully work through the economy. Falling commodity prices and high AUD still weighing on activity and weakness has spread to mining. NAB survey gives little indication near-term demand will strengthen.
• GDP forecasts unchanged, but we have lifted Q1 consumption (strong retail data) and softened our outlook for investment (lower commodity prices). We see GDP softening to 2.4% in 2013 (was 2.3%) before lifting to 3.0% in 2014 (was 3.1%), that is, still below trend. Consistent with this, we see unemployment rising to around 5¾% by late 2013 (unchanged).
• A pull back in business conditions in March, particularly in consumer dependent sectors, indicates we are yet to see the upswing in consumer demand that policy makers are seeking. With inflationary pressures well contained in the near term, assisted by soft demand and a still higher AUD, there is still scope for two more rate cuts by year-end (possibly June & November). Timing is still very fluid with higher house prices a possible delay factor and unemployment path a key variable.

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• Global & Australian Forecasts – April 2013 (PDF 406 KB )