Growth, inflation and labour market all easing
The global economy remains in reasonable shape right now despite some pressures on Emerging Market economies.
The global economy remains in reasonable shape right now despite some pressures on Emerging Market economies. Advanced economy growth looks like it picked up in Q2 and business survey readings are still at solid levels. In contrast, growth in China and some other EME countries looks to have slowed. Our forecasts for global growth have not fundamentally changed, and while we expect it to remain above its long-run average for now, we think growth of 3.8% for this year will be the peak, with our leading indicator of global growth pointing to a moderation in growth in coming quarters. The major immediate risk to this view comes from rising trade tensions, and the possibility that a tit-for-tat cycle of retaliatory measures escalates out of control.
Our forecasts for the economy are broadly unchanged from last month – we expect growth of 2.9% in 2018 and 2019 before slowing to 2.6% in 2020. In the near-term, growth will be driven by increasing LNG exports, strong growth in public sector investment and a pickup in private business investment growth which will continue the handover from the mining sector. Against this, we expect mining investment to continue to fall – though at a declining rate. We expect dwelling investment to also weigh on growth, and the outlook for the consumer to remain weak. While our forecasts remain unchanged, we believe a number of new risks have emerged. On the upside – as evident in the NAB Monthly Business Survey – conditions remain favourable in the mining sector and it appears there may be some new investment. Against this the outlook for the consumer remains highly uncertain. A slowing in employment growth recently may result in a slower pickup in wage growth and ultimately consumer confidence. Also forward orders have come off significantly in recent months. We continue to expect the first rate increase by the RBA to occur around mid-2019 though this remains highly data dependent. Overall the risks are building that the RBA may be on hold for longer.
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