Global growth unchanged as modest country forecast revisions cancel each other out. We see moderate acceleration in global growth to around trend in 2014. Recent data show promising signs in big advanced economies while conditions still softening in emerging market economies. Australian economic growth still edging lower. Our domestic forecasts a touch lower with downside risks building. Treasury and RBA also lowering their expectations. With unemployment likely to be above 6% by year end (higher into 2014), we see another RBA cut in November and risk of more.

• Central bank statements reinforcing their guidance that interest rates should stay low for a long time yet across the big advanced economies have supported financial markets. Recent business surveys and industrial data point to an upturn in growth in these advanced economies, possibly heralding the start of the shift in the composition of global growth away from the emerging markets and toward advanced economies. While USA growth is lower, an accelerating trend is expected to see “tapering” begin in coming months. Against that, business surveys, trade and industry data and GDP releases show a softening trend in the emerging markets. We also expect slower Chinese growth to continue into 2014.
• The Australian economic outlook remains soft. The latest NAB survey showed that business conditions in July remained at a four-year low and confidence fell to the lowest level in eight months. Conditions were especially weak in manufacturing – despite the lower Australian dollar – construction, mining and retail. Labour market forward indicators have deteriorated further, suggesting more weakness in domestic demand to follow.
• There has been a clear shift down in growth expectations from the Commonwealth Treasury and the RBA. That said, we remain a touch more bearish. We see significant deterioration in the labour market in H2 2013 and into 2014. When combined with still low inflation, we expect another RBA cut by year-end – probably November. We see the RBA’s easing bias continuing beyond that and with risks building even more cuts might be required.
• Changes to tobacco excise to more than offset the lower expected price of carbon, leading us to revise up our headline CPI forecasts. But core CPI is expected to edge down to 2.2% by end 2013 and to 2.4% by end 2014. GDP to soften to 2.2% in 2013, rising to a still below-trend 2.6% in 2014. These forecasts are a touch lower, especially in the out years. Unemployment rate forecast to exceed 6% by end 2013 and 6½% by end 2014.

For further analysis download the full report.

• Global & Australian Forecasts – August 2013 (PDF 444 KB)

Also available:

• Monthly Business Survey – July 2013