NAB’s World on Two Pages: May 2019

The Bigger Picture – A Global and Australian Economic Perspective – May 2019.

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Global

Global financial markets had been recovering strongly from the turbulence of late last year but have given up some their gains following the latest round of US-China tariff increases. There have been some signs of activity stabilising – Q1 GDP in some major economies was either stronger or unchanged, and the global composite PMI has basically moved sideways this year. However, our leading indicator of global activity continues to point to a slowdown in growth. Given this, and the flare up in the US-China trade dispute last week, we have lowered our forecasts for global growth in 2019 to 3.3% (3.4%). We then expect growth to slowly return to its long-term trend, rising to 3.4% in 2020 (revised from 3.5%) and 3.5% in 2021. This projected return to trend reflects expected supportive policy settings, a fading impact from trade measures announced to-date, and a recovery from country/region specific shocks that have been weighing on growth (notably within the Eurozone and Latin America). Trade remains one of the key risks to the outlook.

Australia

Ahead of the Q1 national accounts to be released next month we have left our forecasts largely unchanged with the exception of a weaker inflation outlook. We still see relatively weak growth, low inflation and a stable-to-deteriorating labour market over the next couple of years. Consumption will likely only grow modestly on the back of household restraint and dwelling investment is likely to decline substantially as the housing market continues to cool. Against this, we expect exports to support growth in the near term, with growth in public demand and strength in the business sector to support growth further out. That would see employment growth slow and a small deterioration in the unemployment rate from 2020. With remaining spare capacity in the labour market and the economy more broadly, we expect inflationary pressure to remain weak, only building to the bottom of the RBA’s target band by the end of 2021. In this environment while we expect a series of imminent rates cuts – we have moved the timing forward to June and August. We also see the need for additional monetary stimulus in early 2020. In brief, there is little constraint from the risk of high inflation, but there is a need to see faster rates of growth and lower unemployment.

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