AUSTRALIAN ECONOMIC DEVELOPMENTS
This week the IMF downgraded its outlook for the global economy amid escalating trade tensions and growing financial strains in emerging economies. The IMF is now forecasting that global growth will plateau at3.7%p.a.in 2019, down from its forecast of 3.9% p.a. for 2019 published in April. The IMF noted that over the past six months, protectionist rhetoric has increasingly turned into action and that higher trade barriers will“disrupt global supply chains and slow the spread of new technologies, ultimately lowering global productivity and welfare”.
For Australia, the IMF expects recently introduced trade measures to have a negative effect on economic growth in 2019. As a result, it downgraded its expectations for Australian GDP growth in 2019 to 2.8% p.a., from 2.9% p.a. previously (and significantly slower than GDP growth of 3.4% p.a. achieved in 2017-18).
Inside Australia, robust business conditions remained evident across most (but not quite all) industries in September, according to Ai Group’s Australian PMI, PSI and PCI and NAB’s Business Survey. The NAB Business Survey (released this week) suggests business conditions remain above their long-run average but have deteriorated since the start of 2018.
In contrast, confidence amongst both businesses and consumers remain around their long-run average. The Westpac-MI Index of Consumer Sentiment rose by 1.0% m/m to 101.5 points in early October, indicating a slightly improving mood among Australian consumers (results over 100 points indicate ‘net optimism’ in this survey). This rise partially offset falls in August and September, following the change of Prime Minister and mortgage rate increases by some banks.
ABS building activity data show the number of new dwellings being built in Australia fell to 228,000 in the June quarter (Q2) 2018, down from a record high in the March quarter (Q1) 2018. Almost three quarters of new dwellings were being built in Victoria and New South Wales.
Looking ahead, the Bureau of Meteorology (BoM) had more bad news this week for rain-dependent businesses in New South Wales and Queensland with the BoM declaring an "El Niño Alert"for 2018-19. This means the chances of an El Niño event forming during spring is now almost three times more likely than usual (at 70%). An El Niño event is typically associated with lower rainfall in Eastern Australia and higher day-time temperatures in Southern Australia.
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