Economy Mid Year 2015
July 13th 2015 | , IMF & ABS
The global economic outlook has moderated over the past year, due to weaker growth prospects for emerging economies including China, Russia and Brazil. The International Monetary Fund predicts global growth will rise marginally in 2015 and further in 2016.
The United States recovery continues to progress as labour market conditions and household spending improve, assisted by accommodative monetary policy and lower oil prices. The unemployment rate has almost halved since its peak in 2009.
The moderation in China’s growth is expected to continue as it transitions away from residential construction and infrastructure investment towards a more consumer-led economy. However, growth will remain high compared with other countries. Demand for Australia’s minerals will be negatively affected by this transition while consumer-focused export sectors should benefit.
The result of the Greek referendum has just increased uncertainty in the equity and currency trading markets, however further negotiations will determine the outlook for country. While Australia’s direct exposure to the Greek economy is minimal, a complete breakdown of negotiations between Greece and the European Union, followed by a Greek exit from the Euro, may have noticeable ramifications for global financial markets.
- Australia’s economic growth is likely to be below trend in the near term as the transition towards more balanced growth continues. Forecasts suggest growth in gross domestic product will ease slightly to 2.6% in 2015 before improving to 3.1% in 2016.
- Non-mining business investment has been less responsive than expected to low borrowing costs, and more recently, the depreciated exchange rate. Expectations of capital expenditure suggest that a recovery in non-mining investment may be delayed.
- Low interest rates have stimulated the national property market, particularly in Sydney where investor activity has intensified, and in Melbourne to a lesser extent. Robust price growth is encouraging stronger dwelling investment which has offset the slowing resource sector to some degree. Consumer demand growth has also picked up across the non-mining states.
- Victoria’s economic environment is improving, as low interest rates, combined with high population growth, have increased demand in Victoria’s residential property market.
- Victoria’s economy is forecast to rise to 2.50% in 2015-16 from 2.25% in 2014-15, reflecting the strengthening household consumption as well as higher export growth in response to the lower exchange rate and increasing overseas demand.
- Victorian labour market conditions have been weak over the past four years. The unemployment rate has risen and broader measures of spare capacity are at 20-year highs. The bulk of employment growth over this period has been in part-time rather than full-time positions.
- The lower Australian dollar is a significant driver of competitiveness of Victorian businesses in global markets. This includes sectors which are key strengths of the State’s economy such as professional services, education, agriculture and advanced manufacturing.
- Population growth is expected to remain high over the next three years as Victoria continues to be a favoured destination for international and interstate migrants.
- Victoria accounted for 28% of national net overseas migration over the year to September 2014. It also recorded the highest net interstate migration of all jurisdictions, with a net inflow to Victoria from each state and territory except the Northern Territory.
- Four of Australia’s top 10 fastest growing municipalities over 2014 are located in Victoria with the City of Wyndham (in Melbourne’s West) recording the 2nd highest growth in Australia with annual population growth of 10,600.
Business & Consumer Confidence
- After a brief boost to consumer sentiment following the release of the Federal budget, the consumer confidence index has fallen back to pessimistic levels. At 95.3, the index is 1% below its pre-Budget level and the weakest read since the start of the year. Consumers remain concerned about the ongoing economic uncertainty, soft conditions in labour markets; and added nervousness about the outlook for house prices.
- Latest data reveals, that the recent Federal Budget and interest rate cut appears to have had a positive impact on business confidence – which moved up significantly in May – from +3 to +7 index points. This is the highest level of confidence since August 2014. Confidence was significantly higher in retail/wholesale (possibly associated with expectations from the Small Business Package) and finance, business and property services. Mining confidence, on the other hand, fell significantly (to -30 points).
The Reserve Bank of Australia has shrugged off any immediate danger to the economy from a growing sharemarket rout in China and Greece’s debt woes and left the official cash rate at a record-low 2.0% for a second month. While the next move is still more likely to be a cut than a hike, employment which has grown by 120,700 people since December is likely to result in the RBA maintaining the current level of interest rates for the short term.