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Global outlook:

The latest business surveys suggest that conditions in the big advanced economies have stabilised after the softening in growth that took place since late 2011. Monthly trade and industrial indicators still point to a broad-based slowing across the emerging economies that have been driving most global economic growth through the last few years. Central bank policy stimulus in the US, Euro-zone and Japan has helped to lift confidence in financial and commodity markets, reducing fears of Euro-zone collapse and continued slowing in the US. Our forecasts are for global growth to accelerate from this year’s 3% to a still sub-trend 3¼% in 2013. Those forecasts incorporate an assumption that the US averts its “fiscal cliff” and China manages a soft landing.

Outlook for Australia:

The Australian economy is passing through a soft patch. Our GDP forecasts are slightly weaker than a month ago, especially in the out years: 3.3% in 2012 (was 3.4%), 2.5% in 2013 (was 2.8%) and 3.2% in 2014 (was 3.6%). Key drivers of slower activity include; falling income growth from lower commodity prices, a high AUD and fiscal tightening (federal and state). Core CPI expected to stay within RBA target range; 2.4% in 2012 and 2.9% in 2013. We expect one more RBA rate cut in November, provided core inflation remains subdued (CPI of 0.7% or lower), with the possibility of another in early 2013. RBA expected to run accommodative policy in 2013 (3% or lower) to help offset changing nature of mining boom, but sensitive to asset prices and fiscal indiscipline.

Alan Oster, Group Chief Economist NAB.

Troy Phillips

Author Troy Phillips

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