Growth, inflation and labour market all easing
In March, the NAB Monthly Business Survey results pointed to an overall healthy economy that is gaining momentum, at least in the near-term.
Global: The global economic upturn has ridden out geo-political shocks coming from Brexit and the risk of US policy U-turns in the wake of President Trump’s election victory. The latest business surveys show very positive sentiment across the big advanced economies, recent data on global industrial output and trade shows the upturn continuing into 2017 and fear of global deflation has gone as modest price pressure returns. The main disappointment has been the big emerging economies which are key drivers of commodity demand. Central banks appear more relaxed about the outlook, with the period of maximum policy stimulus probably now behind us as the US Fed focuses on gradually lifting interest rates and the others see little need to take any new measures to boost demand. Politics still presents the main risk to our forecast acceleration in global growth from 2016’s 3% rate to around 3½% by 2018 with the focus shifting to the series of elections due in Western Europe through the next year, especially those in France and Italy where anti-Euro populist parties have been polling strongly.
Australia: Economic growth is expected to oscillate through 2017, with partial indicators suggesting very modest growth in Q1, Q2 heavily affected by Cyclone Debbie and then Q3 and Q4 forecast to surge on LNG exports, a rebound in cyclone-affected coal exports and reduced drag from mining investment (GDP growth forecast at 2.3% in annual average terms). Momentum will slow through 2018 as dwelling construction and LNG exports both peak (growth at 2.8% in annual average terms but slowing to 2.3% in through the year terms by Dec-18). Household spending will remain subdued amidst low household income growth, while business investment improves and solid government spending provides an offset. A moderate recovery in domestic demand is then expected in 2019. Against a backdrop of below-target inflation and elevated unemployment, policy makers are unlikely to address their concern about household balance sheets via interest rates, with further macro-prudential measures possible. We expect the RBA to remain on hold for an extended period, before some small hikes in late 2019 as domestic demand improves.
For more details, please refer to the attached document.
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.