ECONOMIC FORECASTING – AUSTRALIA

Economy’s lost year of stagnation

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Original article by Patrick Commins
The Australian – Page: 1 & 6 : 3-Jul-23

KPMG chief economist Brendan Rynne contends Australia is in store for a period of extended economic gloom, brought on by what he states is a "deliberate" policy choice by the Reserve Bank. Modelling by KPMG suggests that unemployment will rise from 3.6 per cent to 4.2 per cent by the close of 2023, before rising steadily up to 4.6 per cent in mid-2024 and reaching a peak of five per cent in early 2025. Corinna Economic Advisory principal Saul Eslake thinks that the RBA might lift interest rates one more time, but that two "would be overdoing it", while he agrees with suggestions that the forecast 715,000 net increase in migration across two years might prevent a technical recession.

CORPORATES
KPMG AUSTRALIA PTY LTD, RESERVE BANK OF AUSTRALIA, CORINNA ECONOMIC ADVISORY

Critical minerals exports set to soar past coal

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Original article by Elouise Fowler
The Australian Financial Review – Page: 6 : 3-Jul-23

The Department of Industry, Science & Resources has forecast that the value of Australia’s critical minerals exports will top $40bn by 2025. Demand for lithium and copper in particular is expected to be strong as the world transitions to clean energy sources. In contrast, the value of thermal coal exports is forecast to fall to $30bn in 2025, compared with expectations of $64bn for 2023; thermal coal prices rose sharply following the invasion of Ukraine, but are expected to fall back to around pre-invasion levels. Meanwhile, lower demand for steel in China is expected to result in the value of Australia’s iron ore exports falling to $93bn in 2024-25, down from $123bn in 2022-23.

CORPORATES
AUSTRALIA. DEPT OF INDUSTRY, SCIENCE AND RESOURCES

Fat budget surplus but brace for crunch

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Original article by Geoff Chambers, Patrick Commins
The Australian – Page: 1 & 4 : 28-Jun-23

Treasurer Jim Chalmers is set to announce that the surplus for 2022-23 will be significantly higher than the $4.2bn that was forecast in the budget on 9 May. Chalmers will attribute the better-than-expected budget bottom line to factors such as higher commodity prices and a strong labour market; however, the exact size of the surplus will not be known for several weeks. Chalmers will also advise that the government expects inflation to remain higher for longer than it would like, while economic growth is forecast to slow from 3.25 per cent to 1.5 per cent in 2023-24.

CORPORATES
AUSTRALIA. DEPT OF THE TREASURY

Australia’s economy is in better shape than most: Fitch

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Original article by Cecile Lefort
The Australian Financial Review – Page: 26 : 24-May-23

Fitch Ratings expects the Australian economy to expand by just 1.5 per cent in 2023, slightly below the Reserve Bank’s forecast of 1.7 per cent growth. However, Fitch contends that the domestic economy is better-placed than most developed nations to cope with rising borrowing costs and slowing economic activity; this includes the other 10 nations that still have an AAA rating from the three major rating agencies. Fitch cites a number of factors in Australia’s favour, including a high level of household savings in the wake of the pandemic, exports to China and an increase in net overseas migration in coming years.

CORPORATES
FITCH RATINGS LIMITED

Higher spending, deficits keep pressure on rates and taxes

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Original article by Phillip Coorey
The Australian Financial Review – Page: B1 & B4 : 10-May-23

The budget papers have confirmed that the federal government expects to post a surplus of $4.2bn for 2022-23. Labor’s first budget in October had forecast a deficit of $36.9bn for the current financial year; however, government revenue has increased by $130bn since October, while its interest payments on debt have fallen by $15bn. The government has saved more than 80 per cent of the revenue upgrades since October. Meanwhile, the Treasury has forecast a budget deficit of $13.9bn in 2023-24, and the budget is not expected to return to surplus again until 2033-34. The Treasury expects the domestic economy’s growth to slow to 1.5 per cent in 2024, due to factors such as high interest rates and the slowing global economy. Inflation is turn forecast to fall from seven to six per cent in 2023, before falling to 3.25 per cent in 2024; inflation is not expected return to the Reserve Bank’s target range of 2-3 per cent until 2024-25.

CORPORATES
AUSTRALIA. DEPT OF THE TREASURY

Floods hit cost of living: Chalmers

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Original article by Phillip Coorey
The Australian Financial Review – Page: 5 : 18-Oct-22

The office of Treasurer Jim Chalmers has indicated that it is too soon to estimate the inflationary and budgetary impact of the floods in Victoria and NSW. However, Chalmers has conceded that the floods will increase the cost of living and may boost the inflation rate, given that some of the east coast’s major food production regions have been affected. He adds that the forecast Budget deficit for the current financial year is also likely to increase. Meanwhile, the Victorian government has announced a $351m flood recovery package. There are fears that the town of Echuca is facing a second flood peak, while Kerang is expected to be isolated by floodwaters for up to two weeks. Heavy rainfall that is forecast for later in the week also looms as a new threat for flood-affected towns.

CORPORATES
AUSTRALIA. DEPT OF THE TREASURY

Chalmers warns of rates-driven inflation

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Original article by Ronald Mizen, Matthew Cranston
The Australian Financial Review – Page: 4 : 12-Oct-22

Treasurer Jim Chalmers says the world is facing a "substantial" global economic downturn, although he adds that the federal government’s first Budget on 25 October will not forecast a recession in Australia. Chalmers has also warned that the widening gap between interest rates in Australia and the US could boost inflation by putting downward pressure on the Australian dollar and making imports more expensive. Meanwhile, the International Monetary Fund now expects the Australian economy to grow by just 1.9 per cent in 2023; it had previously forecast growth of 2.2 per cent. The IMF has also downgraded its global growth forecast.

CORPORATES
AUSTRALIA. DEPT OF THE TREASURY, INTERNATIONAL MONETARY FUND

Interest rates: Ghost of ’89 may come to haunt us

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Original article by Patrick Commins
The Australian – Page: 2 : 4-Oct-22

National Australia Bank’s chief economist Alan Oster expects the cash rate to rise by 50 basis points on Tuesday, followed by a 25 basis point increase in November. However, he warns that the nation could pay a heavy price for a "policy mistake" by the Reserve Bank of Australia’s board, noting that the central bank’s aggressive tightening of monetary policy in 1989 ultimately led to a recession and a sharp rise in the unemployment rate. Oster is not predicting a recession in Australia at this stage, but he says the worsening global economic outlook will inevitably have an impact in Australia.

CORPORATES
NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, RESERVE BANK OF AUSTRALIA

Higher interest rates tipped to bite

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Original article by Ronald Mizen
The Australian Financial Review – Page: 1 & 4 : 3-Aug-22

Reserve Bank of Australia governor Philip Lowe has reiterated that higher interest rates are necessary to return inflation to the target range of 2-3 per cent and to create a sustainable balance of demand and supply. Financial markets are now pricing in a cash rate of three per cent by December, following the RBA’s third consecutive increase of 50 basis points on Tuesday. The cash rate is now at a six-year high of 1.85 per cent, and many economists expect a rate rise of either 25 or 50 basis points in September. Meanwhile, the RBA has downgraded its economic growth forecast for both 2023 and 2024 to just 1.75 per cent, while it expects the official unemployment rate to reach four per cent by the end of 2024.

CORPORATES
RESERVE BANK OF AUSTRALIA

Wage hikes ‘risk economy’: Lowe

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Original article by Patrick Commins
The Australian – Page: 1 & 2 : 22-Jun-22

Reserve Bank of Australia governor Philip Lowe has downplayed the prospect of a recession, noting that the nation’s economic fundamentals are strong and the jobless rate is at a five-decade low. However, Lowe has warned of the need for wage restraint, arguing that across-the-board pay rises of five per cent or more could see high inflation become entrenched. He contends that wage increases of around 3.5 per cent are more appropriate and sustainable in the current environment. Lowe has also reiterated his view that inflation will peak at around seven per cent before falling in early 2023, but he cautions that it will not return to the RBA’s target range of 2-3 per cent for some time.

CORPORATES
RESERVE BANK OF AUSTRALIA