Recent strong figures suggest that risks to our 2017 real GDP growth estimate of 2.1% are to the upside, but we maintain our view for growth to slow to 1.8% in 2018. We do not expect the recent recovery in the mining sector to be sustained amid an anticipated slowdown in Chinese demand, while consumer-focussed sectors of the economy are at risk from a potentially destabilising jump in the personal savings rate as the property market cools.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: MAIN EXPORT AND IMPORT PARTNERS
TABLE: MAIN EXPORTS AND IMPORTS
RBA's 2018 Interest Rate Hike Likely To Be Modest
We expect the RBA to raise its cash rate by 25bps to 1.75% towards the latter part of 2018 amid a slow normalisation in monetary policy as inflation rises. The interest rate increase will likely be modest as the economy will still face headwinds from the slowdown in China and the domestic housing market, while the rise in inflation will be gradual.
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Fiscal Deficit To Narrow But Not As Fast As FY2017/18 MYEFO Suggests
We maintain our expectations that Australia's federal fiscal deficit will narrow at a slower pace than that suggested by the government due to poorer revenues resulting from weaker economic growth and commodity prices, coupled with gridlock in the Senate. We are therefore forecasting the federal fiscal deficit as a share of GDP to shrink to 1.8% in FY2017/18 and 1.4% in FY2018/19 (compared with 1.0% and 0.8% as released in the FY2017/18 Mid-Year Economic and Fiscal Outlook).
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
AUD: Cautious Outlook Despite Strong Start To 2018
We are revising up our 2018 average forecast for the Australian dollar to USD0.7800/AUD (from USD0.7675/AUD previously) to account
for the currency's strong start to the year. Despite this revision, we are still cautious on the currency's trajectory over the coming months
as the rally has been beyond that suggested by commodity prices and real interest differentials between Australia and the US as
headwinds facing the Australian economy are likely to mount.
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Australian Economy To 2027
Four Major Headwinds To Growth
We forecast Australia's real GDP growth to average 2.1% per annum over the next decade, down from 2.7% over the past decade as
the combined headwinds of slowing population growth, greater government spending, subdued terms of trade and heightened deflation
risks weigh on economic activity.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
BMI Political Risk Index
Relations With China To Remain Warm
We expect Australia to seek to maintain its warm relations with China over the coming years given that China has become an
increasingly important trade and investment partner.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Three Key Challenges: Population, Climate Change, China
The Australian political scene is expected to remain stable over the coming decade, although it will still face a number of key challenges.
The most salient are managing population growth, climate change and relations with China.
Chapter 4: Operational Risk
TABLE: LABOUR MARKET RISK INDEX
TABLE: LOGISTICS RISK INDEX
TABLE: CRIME AND SECURITY RISK INDEX
TABLE: TRADE AND INVESTMENT RISK INDEX
Chapter 5: BMI Global Macro Outlook
Growth, Inflation And Rates On The Rise
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Real GDP growth is highly likely to slow over the coming years owingto a number of factors: slowing growth in the size of the working-agepopulation, a high share of government spending relative to GDP,still-subdued terms of trade and the growing risk of deflation. Theseimpediments will result in real GDP growth averaging 2.1% over thenext decade, down from 2.7% over the past decade.