Growth, inflation and labour market all easing
Global economic growth remains moderate with a sub-trend pace of GDP expansion set to continue.
Global: While growth remains sub-trend, the global economy has also proved resilient. Output has continued to grow, despite a series of financial and political shocks this year. However, 2016’s growth has been concentrated into just three countries –the US, China and India – and that looks set to persist. Monetary policy in the big advanced economies is shifting toward gradual rate rises (in the US), cutbacks in asset buying (Euro-zone) or more of the same, rather than yet more stimulus (UK, Japan). Global long bond yields are already turning up and the USD should appreciate further as markets digest the change in US economic policy. Our view is for global growth to modestly accelerate from 2016’s 3% to 3¼% in the following two years. However, high debt burdens, further political uncertainty – particularly next year’s Euro-zone elections – pose big risks to the outlook.
Australia: Multiple one-off factors, including weather related disruptions, contributed to the weak Q3 GDP outcome, but are unlikely to be repeated in Q4. However, the lower base for growth has led to a downgrade of our 2016 and 2017 growth forecasts to 2.3% and 2.4% respectively. Nevertheless, near-term risks are tilted to the downside with a significant slowdown in indicators such as business conditions, employment and household spending. Further out, our forecasts continue to include a notable slowdown, which risks a rise in the unemployment rate in the absence of more policy stimulus – we still expect two more cash rate cuts by the RBA from mid next year. Our unemployment rate forecasts have been revised up to around 5¾% through to 2018.
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