Key Points:

• Although some of the risks hanging over global markets have abated, recent and forecast global economic growth remains lacklustre. Growth remains stuck in the 3 to 3¼% range seen since mid-2012 as lower commodity prices, capital flow reversals and central banks focused on getting inflation back toward target take a toll on the pace of expansion in emerging market economies that underpin most global output expansion. Growth should level out in the US and UK at a moderate 2 to 2½% pace and pick up slightly in the poorly performing Euro-zone and Japanese economies but this is not enough to fundamentally change a global outlook that remains dominated by the loss of momentum in the emerging economies. Inflation is low in the big advanced economies, allowing central banks to take a cautious and gradual approach to lifting interest rates to “normal” levels – but inflation is still a problem in some emerging economies

• In Australia, we remain cautiously optimistic that the gradual recovery in the non-mining sector is gaining traction. Recent outcomes from the business survey support this contention with business conditions holding up at a high level in October, and the unemployment rate holding steady. In addition, partial indicators for Q3 GDP suggest a high outcome, which would retrace the temporary weakness in Q2. The RBA appears to concur with this assessment, and chose to hold off further monetary policy easing in the month despite some tightening of financial conditions. Low inflation however does provide room for the RBA to ease, although this would require evidence that local demand conditions are deteriorating again (not our or the RBA’s central case scenario), and more concrete evidence that housing demand is easing. As such the RBA is expected to remain on hold for an extended period, although we have pushed out the timing of the first hike until mid-17. Real GDP is forecast to expand by 2.6% in 2015/16 and 3.0% in 2016/17, with El Niño only subtracting marginally. The unemployment rate eases gradually but remains elevated for an extended period.

For further details, please see the attached documents.

Global & Australian Forecasts – November 2015 (PDF, 1MB)