October 9, 2012
Global & Australian Forecasts – October 2012
Global economy slowing but recent advanced economy surveys show stabilisation. Broad-based slowing under way across emerging economies. Global forecasts a touch lower in 2013 but risks remain (US “fiscal cliff”). Australian economy softening to below trend amid restructuring stresses.
NAB’s Global and Australian Forecast provides a monthly snapshot of NAB’s global and domestic economic outlook.
Global economy slowing but recent advanced economy surveys show stabilisation. Broad-based slowing under way across emerging economies. Global forecasts a touch lower in 2013 but risks remain (US “fiscal cliff”). Australian economy softening to below trend amid restructuring stresses. Lower commodity prices, fiscal tightening and high AUD add to complications. GDP forecasts lowered, especially in 2013. RBA now likely to follow up in November, provided inflation remains subdued.
- The latest business surveys suggested that conditions in the big advanced economies have stabilised after the softening in growth that took place since late 2011. Monthly trade and industrial indicators still point to a broad-based slowing across the emerging economies that have been driving most global economic growth through the last few years. Policy stimulus by central banks in the US, Euro-zone and Japan has helped to lift confidence in financial and commodity markets, reducing fears of Euro-zone collapse and continued slowing in the US. Our forecasts are for global growth to accelerate from this year’s 3% to a still sub-trend 3¼% in 2013. Those forecasts incorporate an assumption that the US averts its “fiscal cliff”, and China manages a soft landing.
- The Australian economy is still passing through a soft patch; with business conditions weaker and forward indicators concerning. We have lowered our growth outlook somewhat, especially in 2013: GDP forecasts 3.3% in 2012 (was 3.4%) and 2.5% in 2013 (was 2.8%) and for 2014 3.2% (was 3.6%). Key drivers of slower activity over the next year include; falling income growth from weaker commodity prices, a still high AUD – which may be increasingly figuring in firms’ re-structuring decisions – and fiscal tightening (both at the federal and state levels). Into the medium term, the mining investment boom expected to peak in late 2013 / mid 2014 with exports largely offsetting weaker investment but the demand for labour is likely to weaken.
- The survey continues to show very subdued aggregate inflation path – albeit carbon pricing may have added to headline pressures in Q3 2012. A slightly weaker demand profile, continuing retail discounting and the robust AUD should see core inflation staying within the RBA target range – 2.4% in 2012 and 2.9% in 2013. Labour market conditions are expected to remain soft, with structural changes expected to remain a key theme. We now expect to see another RBA rate cut in November – provided inflation numbers remain subdued. And it is possible that another cut in early 2013 may emerge if activity and the labour market deteriorate further. Certainly the RBA looks likely to continue to run accommodative policy in 2013. Against that, housing prices appear to be reacting to lower rates and a lack of fiscal discipline in the run up to the election remains a risk.
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