Growth, inflation and labour market all easing
We have lowered our 2016 global forecasts to 3.0% (from a revised down 2.9% in 2015)
We have lowered our 2016 global forecasts to 3.0% (from a revised down 2.9% in 2015) in the face of a continuing sharp recession in Brazil, lower commodity prices, global equity market uncertainty and rising spreads – weakness in late 2015 in the USA has also not helped. Global growth continues to disappoint and remains sub-trend as the slowdown continues across many emerging market economies. The latest bout of financial market volatility and sliding commodity prices illustrate the risks hanging over even this sub-par growth path – albeit we still believe the most likely outcome remains that the global economy will again “muddle through”. The risks are, however, weighted to the downside with little to inspire confidence on the upside. Nor do we see much sign of a pick up in 2017 (3.3% forecast). These numbers remain significantly lower than recent IMF revised (down) global forecasts.
The outlook for the Australian economy is essentially unchanged despite global risks and we continue to anticipate further recovery across the non-mining economy. The AUD (now expected to depreciate to USD66c by mid-2016) will continue to act as a pressure valve, the tilt towards services activity will support employment, and lower petrol prices will support the cash flow position of most households and businesses. Resource export volumes will remain strong, although the associated income and government revenue will of course be challenged by low commodity prices. Overall, real GDP is forecast to pick up gradually to 2.7% in 2016 and 3.0% in 2017. The unemployment rate track has been revised given the lower starting point, and is now expected to ease to 5.6% by end-16 and 5.5% by end-17. For the RBA, unless financial market volatility translates into substantive negative real economic outcomes offshore, the central bank is likely to remain on the sidelines and observe developments, while continuing to focus on solid momentum in non-mining economic activity.
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