Global growth forecasts unchanged. A few signs that activity is picking up in some advanced economies but India and Brazil still soft and growing concerns over pace of Chinese growth. Markets focussed on central bank policy driving greater volatility in equities and currencies. Australian economy softer again in June. NAB activity forecasts unchanged but AUD now expected to be lower and next rate cut now moved forward to August (with emerging risk of one more). Labour market to deteriorate throughout remainder of 2013.

• Equity and currency market volatility reflects uncertainties over the pace at which the Fed might alter US monetary policy, Chinese authorities might clamp down on shadow banking and the potential impact of the Bank of Japan’s move to greater monetary easing. Recent industrial and trade data plus business survey readings show slightly better activity outcomes in big advanced economies but growth in India and Brazil remains disappointing and there are growing concerns that China might be unable to manage a smooth transition to slower more consumer-led economic growth. After two years of growth around 3%, we still expect global growth to move back to trend in 2014.
• The domestic economic outlook remains soft. The latest NAB survey reported the weakest readings for business conditions & capacity utilisation for more than four years. Business conditions in retail, manufacturing and mining are particularly weak. Labour market forward indicators still point down and transition from mining investment is creating a big structural adjustment task.
• Domestic weakness, softness in China and financial volatility have encouraged us to revise down our track for the USD/AUD (reaching 88c by end 2013 and 83c by end 2014) and bring our next expected rate cut forward to the next meeting on 6 August (previously November), assuming no surprises from unemployment or inflation. We expect the bias to easing to continue beyond August.
• Our inflation forecasts are unchanged at 2.4% in mid-2013 and 2.5% in mid-2014, well within the RBA target band. We have left GDP growth unchanged at 2.3% in 2013 and 2.8% in 2014 but with greater downside risk to the outlook. Unemployment rate is still expected to exceed 6% by the end of this year.

For further analysis download the full report.

• Global & Australian Forecasts – July 2013 (PDF 432 KB)

Also available:

• Monthly Business Survey – June 2013