February 15, 2019

NAB’s World on Two Pages: February 2019

The bigger picture – A global and Australian economic perspective.


Global growth continued slowing into Q4 last year – with China and the Euro-zone leading the way lower, while growth in the United States is expected to have come off its 2018 highs. Early indicators point to a further softening in the global economy into early 2019. Given the softer economic conditions, expectations around major central bank monetary policy has become more dovish, helping to reverse some of the deterioration in financial conditions that occurred in late 2018. Our forecasts for global growth have been revised marginally lower in 2019 – down to the long term trend rate of 3.5% (from 3.6% previously). Slower growth in the US, the Euro-zone and China are the key drivers of this trend. We expect growth to stabilise at this level in 2020, partly as a result of a dovish shift in policy.


While we have fine-tuned some of our near term growth forecasts – to include weaker than expected private consumption and net exports in Q4 2018 – we have fundamentally not changed our GDP forecasts. We expect growth over the next two years to be supported by government spending (infrastructure and NDIS), growing commodity exports and private business investment. Against that, we expect consumption growth to weaken and dwelling investment to fall. Indeed both our Business survey and internal NAB data point to continued consumer weakness in the early part of 2019. Overall our key forecasts remain unchanged with GDP growth of 2.4% in 2019 and 2.2% in 2020 – with a more marked slowdown in the through the year numbers (2.7% and 2.2% respectively). Our outlook for the labour market and inflation are broadly unchanged. The most significant change to our forecasts this month is the outlook for interest rates. We no longer expect the RBA to increase rates in H2 2019, and expect rates to remain on hold with growth slowing but the labour market still tightening and inflation and wage growth beginning to lift. However at face value, our forecasts imply a cut is necessary in order for the RBA to provide some additional support to the economy that would see better outcomes on the growth and labour market and a faster return to the inflation target with the risk of overshooting very low and financial stability concerns having faded. Further, it appears that over the past few months, risks to our forecasts have either materialised or shifted to the downside. Should labour market conditions deteriorate in these circumstances, the RBA will likely act sooner – rather than later – to lower the cash rate.

Find out more in NAB’s world on two pages: February 2019