Global growth still sluggish and expected to stay that way in 2013. Forecasts assume US fiscal cliff averted and Euro-zone stresses subside. US growth is moderate, Japan and Euro-zone weak, emerging economies now driving global expansion. Australian economy slowed in Q3 and may soften again in Q4. A still elevated AUD, fiscal tightening and very weak confidence expected to weigh on near-term activity allowing one more RBA cut (probably in May 2013).

• Although interest rates are historically low in the advanced economies and central banks have stepped up their liquidity injections, their pace of economic growth is still very weak. The latest crop of business surveys as well as the hard data on trade and output do not suggest that the business environment is about to improve and there are well known risks in theUSand Euro-zone that are depressing confidence. Global economic growth is largely being driven by the big emerging economies and here, at least, it looks as if their economies are stabilising. We have made a few changes in our country growth forecasts but they largely offset each other in terms of their impact on bottom line global growth, which should remain a sub-trend 3% or so this year and next.
• Australian GDP growth eased further in Q3, up 0.5% following growth of 0.6% in Q2. Solid business investment growth was supported by soft growth in consumption and net exports, while the public sector weighed heavily on growth. Outlook broadly unchanged this month; GDP forecasts 2.5% in 2012-13 (was 2.3%) and 2.8% in 2013-14 (was 3.0%). Softening resources investment, a still elevated AUD, fiscal tightening and very weak confidence are expected to weigh on near-term activity. Frictional pressures will keep the unemployment rate somewhat elevated.
• Inflation is unlikely to be a barrier to additional monetary policy easing in the first half of 2013. NAB survey continues to show retail price growth subdued. We see core inflation (inc. carbon) of 2.8% in 2012-13 and 2.9% in 2013-14. The future path for the cash rate appears lower now than it was a month ago. We now see potential for a further reduction next year (May, but February if conditions worsen), taking the cash rate to 2.75%.

For further analysis download the full report.

• Global & Australian Forecasts – December 2012 (PDF 471KB)