Below trend growth to continue
Global growth remains sub-trend and there is little sign of an imminent acceleration in the pace of expansion while in Australia, we remain cautiously optimistic that the gradual recovery in the non-mining sector is gaining traction.
Global: Global growth remains sub-trend and there is little sign of an imminent acceleration in the pace of expansion – which should stay around 3%. Some factors hanging over global markets have eased for now and this has helped share prices to rise. However, the combination of higher US interest rates and lower commodity prices has caused problems in the past for emerging market economies, which have been driving the bulk of global growth since 2009. The modest upturn forecast for Japan and the Euro-zone is not enough to markedly change the lacklustre economic outlook.
Australia: We remain cautiously optimistic that the gradual recovery in the non-mining sector is gaining traction. Recent outcomes from the business survey support this contention, while the unemployment rate is also holding steady. The RBA has so far refrained from easing policy further despite some tightening of financial conditions. Low inflation however does provide room for the RBA to ease, although this would require evidence that local demand conditions are deteriorating again. As such the RBA is expected to remain on hold for an extended period, although we have pushed out the timing of the first hike until mid-17. Real GDP is forecast to expand by 2.6% in 2015/16 and 3.0% in 2016/17, with El Niño only subtracting marginally. The unemployment rate eases gradually but remains elevated for an extended period.
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