Quarterly Economic Outlook

The Australian and Global Economic Outlook

  • Globaleconomic growth was subdued last year and this year the pace of economic growth is expected to pick up only marginally to 3.4%, according to the IMF. The pace of growth in the US has picked up in recent quarters and economic growth in China remained robust last year.
  • The domestic economy has lost some momentum. However, despiteeconomic growth contracting in the September quarter, we do not expect Australia’s economy to go into recession this year. We expect GDP growth of 2.1% for 2016, 2.3% this year and 2.7% in 2018.

The Outlook for Interest Rates

  • The Reserve Bank faces a difficult balancing act as we move through 2017.  Any action on rates must consider the prospects of low inflation and growth at a time when house prices are reaccelerating.
  • Domestic swap yields and fixed rates for borrowers are set to head higher this year.  Higher US bond and swap yields will push Australian yields higher, although at a more moderate pace than in the US.

The Outlook for the Australian Dollar

  • Key fundamentals for the AUD are providing mixed signals for the outlook. Resilient commodity prices could provide support for the Australian dollar, but the currency has not had a strong relationship with commodity prices recently. Meanwhile, the narrowing interest rate differential between Australia and the US points to downside pressure for the Australian dollar.
  • Our view that the US dollar will track sideways suggests that the Australian dollar will also end the year not far from current levels. We expect the AUD to end 2017 at 75 US cents.