Australia: GDP expected to expand by 2.9% in both 2016 and 2017 - NAB

Research Team at NAB, suggests that the Australia’s economic outlook is largely unchanged from last month, despite some minor downgrades to our GDP forecasts stemming from slightly weaker trading partner growth forecasts and marginally higher currency forecasts.

Key Quotes

“Real GDP is expected to expand by 2.9% in both 2016 and 2017 before slowing to 2.5% in 2018. The unemployment rate is expected to resume its modest downward trajectory later in the year, easing to 5½%, before stabilising in 2017 and inching up to o5.8% in 2018.

Our forecasts assume conditions across the non-mining economy remain reasonably solid. Incoming data is supporting this view for now, with business conditions up to +12 and consistently above average for the past 14 months. This seems to be assisting business confidence, which is welcome as we enter a period of political uncertainty.

The outlook for income growth and government revenue meanwhile remains challenging, with S&P placing Australia’s AAA credit rating on negative outlook. S&P has given the government of the day 6 to 12 months to pass savings and expenditure measures, amidst what remains a challenging fiscal backdrop. Key commodity prices are likely to remain low for an extended period, leading to further declines in the terms of trade, while the outlook for wages is subdued with spare capacity to remain in the labour market.

These forecasts are based on slightly weaker trading partner growth forecasts and a slightly higher trajectory for the AUD than last month. The AUD is now expected to ease to USD 70c by end 2016 (previous 69c), with a move sub-70c sometime next year before re-appreciating into 2018. The also assume the RBA cash rate remains at 1.75%, although a further cut is possible and is highly data dependent.”