Bond markets have been supported by some market-friendly data and while Fed speakers were again mixed, it was the more dovish remarks that captured attention.
Global & Australian Forecasts – July 2014
Moderate global growth continues after early 2014’s slowing, resulting in slightly lower growth forecasts in 2014 but nearer trend in out years. Mixed picture among advanced economies as US & Euro-zone growth disappoints expectations but UK expansion stays solid...
Moderate global growth continues after early 2014’s slowing, resulting in slightly lower growth forecasts in 2014 but nearer trend in out years. Mixed picture among advanced economies as US & Euro-zone growth disappoints expectations but UK expansion stays solid & Japan has coped with April’s tax hike better than some feared. Mixed picture in emerging economies too as trend slowing in China continues, other East Asian economies & Latin America stay sluggish & India disappoints. Australian forecasts unchanged: business confidence still unaffected by Budget, conditions better but still below average, but employment down & forward indicators soft. Cash rate on hold until late 2015; unemployment to edge up.
- After rising through 2013, the main business surveys have gone sideways in 2014 and the pace of global growth has slipped slightly. World GDP growth softened from 3.3% yoy to 3% yoy between late 2013 and early 2014 and monthly data on industrial output and world trade confirm the fading in the previous upward momentum of growth. Bad weather in North America explains some of early 2014’s disappointing outcome but the Euro-zone upturn also faltered and Japan’s economy has to digest the April rise in indirect taxes. Despite these headwinds, we expect global growth to quicken to 3.7% in 2015 and 2016 as the US recovers and expansion picks up in long-time under-performing economies like India and the Euro-zone.
- Domestic indicators continue to point to jobless growth and no certainty that declining mining investment will be replaced quickly. Retail looks softer and property market seems near a plateau. Extent of fiscal consolidation remains uncertain and could be a slow burn on activity with concerned consumers. Forward indicators from survey still weak.
- Australian forecasts unchanged: 3.3% in 2014/15, 3.0% in 2015/16. But jobless growth still sees unemployment rate peak at 6¼% by end-2014. Cash rate unchanged until late 2015. On rates our judgement is that the risks of a further easing has risen but so far hasn’t satisfied the high hurdle necessary to get the RBA to do anything about it.
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