Below trend growth to continue
There was an improved tone in global markets this month.
Global: There was an improved tone in global markets this month. While this is welcome news that reduces the risk of a new slowdown in the global economy, sub-trend growth is expected to continue with the pace of global expansion remaining around 3% in 2016. March global business surveys are finally showing a lift in activity but it is too early to be sure that the better performance will be sustained and our tracking models are not pointing to any significant imminent upturn in the pace of expansion.
Australia: Recent business survey outcomes suggest the recovery across the non-mining economy is on track or indeed gathering speed. Overall, our real GDP forecasts are broadly unchanged at 2.7% in 2016, 3.0% in 2017, and easing to 2.5% in 2018 as the large contribution from net exports dissipates. The unemployment rate is forecast to fall to 5.6% by end-16 and 5.5% by end-17 before ticking up in 2018. We retain our view that the RBA will remain on hold through 2016, although this will depend on the path of the currency, inflation and the labour market. Lower than target inflation in conjunction with an AUD above 80 US cents and any evidence of a faltering non-mining recovery would see further rate cut(s).
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