Australia: The Australian economy appears to have stumbled into Q4. Growth outlook is unchanged; GDP forecasts 2.3% in 2012-13 (below Commonwealth Treasury and RBA’s 3%) and 3.0% in 2013-14 (in line with Treasury’s 3% and RBA’s 2¼-3¼%). Weighing on near-term activity will be slowing mining investment, a still high AUD, fiscal tightening and ongoing weak global economy. The path for inflation remains soft – notwithstanding the impact of carbon pricing on headline CPI in Q3 2012. We see inflation of 2.9% in 2012-13 (RBA 2¾%) and 3.0% in 2013-14 (RBA 2-3%). While CPI is expected to rise, we favour one more rate cut; 25 bps in February to mitigate weakness in near-term demand.

Global: Central banks in the advanced economies continue to provide policy stimulus to promote growth and their counterparts in the emerging economies have shifted from tightening to easing monetary policy. Nevertheless, the pace of global growth remains slow with the big emerging markets and the US driving most of the world’s output expansion. Although the emerging market economies have fared much better than advanced economies, the softening in growth has been broadly-based with large parts of Latin America and Asia slowing markedly. Output now seems to be falling in key Euro-zone export markets and the Japanese economy has hit a new series of problems. Global growth expected to rise from 3.1% in 2012 to a still sub-trend 3¼% in 2013.

Source: Alan Olster, Chief Economist, NAB