Global upturn continues and forecasts little changed. Advanced economies see faster recovery after prolonged weakness post 2008/09 recession. Chinese and Indian economies faring better with no slowing in former and activity picking-up in the latter. Fed “tapering” in asset buying set to begin in early 2014 but Fed funds rate hikes could be delayed beyond late 2015. Australian domestic economy expected to remain weak and growth, while gradually improving, not likely to be jobs-friendly. Outlook little changed with RBA watching economy before another cut in May, although some risk of an earlier or second cut – labour market will be key to watch.
- September industrial output and broader measures of quarterly GDP are finally showing economic growth starting to lift in line with both the business surveys and our forecast for a global upturn in 2014 that is largely driven by the advanced economies. Despite the faster growth in sight, central banks across the big advanced economies are expected to keep their interest rates very low by historical standards as there is little evidence of inflationary pressure in most economies and they want to support what has been a weak recovery from the very deep 2008/9 recession. Emerging market central banks face more of a dilemma with some raising rates recently to combat inflation (Indonesia, Brazil) and disappointing growth outcomes across large parts of SE Asia,India and Latin America.
- NAB business conditions and confidence broadly unchanged in November, but signs of improving conditions. Trading conditions up, especially mining and manufacturing, with capacity utilisation off recent lows, but employment index fell heavily implying worsening unemployment. Forward indicators still soft but capex better.
- National accounts for Q3 confirmed weak state of domestic economy with annual growth at 2.3%. GDP forecasts broadly unchanged: GDP growth to soften to 2.3% in 2013 before lifting to 2.7% in 2014 and 3.0% in 2015. Critically domestic demand not expected to exceed 1% in the forecast period. Unemployment to nudge 6% by end 2013, around 6½% by end 2014, before easing towards 6% by late 2015. No signs of non-mining sector filling in prospective mining investment gap. Core CPI in lower half of target range (2.5% by end 2014, 2.3% by end 2015). RBA biding its time as low interest rates make their mark on asset prices, but deteriorating labour market likely to force another cut (May 2014). Second cut possible if labour market even weaker.
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