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28 Nov 2014
Australian growth prospects revised lower - ANZ
FXStreet (Bali) - ANZ has revised down Australia's growth prospects, and now expect slightly softer growth in 2015 and 2016 of 2.9% and 3.2% respectively.
Key Quotes
"We have revised down our growth profile for Australia, and now expect slightly softer growth in 2015 and 2016 of 2.9% and 3.2% respectively. This new forecast incorporates recent sharp downward revisions to our iron ore price forecast, and has seen us take around 1ppt off our nominal GDP forecast and around ¼ppt off real GDP growth."
"Lower commodity prices will weigh on profits and wages, while also reducing both company taxes at the federal government level and royalties at the state level. They will in turn constrain consumer spending and business investment, and lead to an extended period of weaker than usual growth in public demand. Importantly, these revisions represent a delay in the return to trend growth rather than a change in the trajectory of the Australian economy."
"With lower growth and little inflationary pressure, the RBA has scope to keep monetary policy accommodative for longer. Accordingly, we have revised our cash rate forecasts. We still expect a new tightening phase to commence next year, but have pushed back the timing of the first rate hike from May to November. We expect 100bps of rate hikes over the following year to take the cash rate to 3.5% by the middle of 2016."
"The lower growth profile and slower expected policy normalisation from the RBA have led us to revise our rates market forecasts lower. We expect the slower and longer path to rate hikes to flatten the mid curve a little more than previously forecast, though the theme of a flatter curve remains central to our view. We also expect the Aus/US 10yr spread to narrow a fraction more than previously forecast as the Federal Reserve is likely to normalise policy ahead of the RBA."
"Taking into account the impact of these interest rate revisions, ANZ Research estimates that fair value for the AUD is about USD0.79. Despite this, we maintain our USD0.82 forecast for end-2015 and believe that either a rate hike from the US Federal Reserve, or a further step down in key commodity prices would be a more compelling trigger to further downgrade our forecasts."
Key Quotes
"We have revised down our growth profile for Australia, and now expect slightly softer growth in 2015 and 2016 of 2.9% and 3.2% respectively. This new forecast incorporates recent sharp downward revisions to our iron ore price forecast, and has seen us take around 1ppt off our nominal GDP forecast and around ¼ppt off real GDP growth."
"Lower commodity prices will weigh on profits and wages, while also reducing both company taxes at the federal government level and royalties at the state level. They will in turn constrain consumer spending and business investment, and lead to an extended period of weaker than usual growth in public demand. Importantly, these revisions represent a delay in the return to trend growth rather than a change in the trajectory of the Australian economy."
"With lower growth and little inflationary pressure, the RBA has scope to keep monetary policy accommodative for longer. Accordingly, we have revised our cash rate forecasts. We still expect a new tightening phase to commence next year, but have pushed back the timing of the first rate hike from May to November. We expect 100bps of rate hikes over the following year to take the cash rate to 3.5% by the middle of 2016."
"The lower growth profile and slower expected policy normalisation from the RBA have led us to revise our rates market forecasts lower. We expect the slower and longer path to rate hikes to flatten the mid curve a little more than previously forecast, though the theme of a flatter curve remains central to our view. We also expect the Aus/US 10yr spread to narrow a fraction more than previously forecast as the Federal Reserve is likely to normalise policy ahead of the RBA."
"Taking into account the impact of these interest rate revisions, ANZ Research estimates that fair value for the AUD is about USD0.79. Despite this, we maintain our USD0.82 forecast for end-2015 and believe that either a rate hike from the US Federal Reserve, or a further step down in key commodity prices would be a more compelling trigger to further downgrade our forecasts."