Wednesday, December 05, 2012

Less than brilliant. How the ABE sees the year ahead

Economic growth is set for a fall, business investment will hit wall, and the government is heading for a deficit this financial year rather than a surplus. Those are chief findings of a dismal set of forecasts assembled by Australia’s leading business economists for their annual forecasting conference.

Australia’s annual economic growth rate has already slipped from 4.3 per cent in March to 3.1 per cent in the September quarter figures released Wednesday. The forecasters expect 2.8 per cent next year with one pumping for an annual rate as low as 0.7 per cent.

Elected by their peers to the Australian Business Economists executive committee, the 16 forecasters work for big firms including the Macquarie Group, Deutsche Bank, JP Morgan and the Westpac, Commonwealth, National Australia and ANZ banks.

Growth in business investment - until now a driver of economic growth - is expected to slip from 16 per cent this year to 9.3 per cent next year and then close to zero (0.7 per cent) in 2014.

“The committee believes the peak in the prices phase of the mining boom is over,” said ABE chairman Stephen Halmarick of Colonial First State... “The peak in the investment phase will follow soon. The export phase of the mining boom is viewed as having much longer to run.”

The committee expects a further a sharp fall in the terms of trade of 5.5 per cent in 2013, following this year’s slide of 9 per cent. “These falls will mean the economy is likely to lose some of its insulation,” the report says.

Household consumption is more slowly in 2013 notwithstanding the run of interest rate cuts before recovering somewhat in 2014.

Dwelling investment is expected to improve, climbing 3 per cent and 5.7 per cent in 2013 and 2014 after sliding 5.4 per cent in 2012.

Government income will be particularly hard hit by sliding company tax revenue, resulting in a budget deficit of $8 billion this financial year rather than the forecast surplus of $1.1 billion. The range of budget forecasts is particularly wide, from a low of a $20 billion deficit to a high of a $0.1 billion surplus. The 2013-14 forecasts range from a deficit of $7.9 billion to a surplus of $1 billion.

Unemployment will peak at 5.8 per cent (up from 5.5 per cent) but the range of forecasts is particularly wide with the highest forecast a peak of 6.8 per cent and the lowest a peak of 5.7 per cent.

The carbon tax should headline inflation should brush the top of the Reserve Bank’s target 2 to 3 per cent target band next year, but the committee expects the more important measure of so-called underlying inflation to remain contained at 2.6 per cent during both 2013 and 2014.

On balance the committee expects the Reserve Bank’s cash rate to stay steady at 3 per cent for the next two years, but forecasts for next year range from a low of 2.5 per cent to a high of 5.3 per cent.

In today's BusinessDay

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