The Australian economy has made significant headway through the ‘great transition’ from the resources capital expenditure boom. The GDP growth tracking was at 3.1 percent in the first quarter of 2016, while the jobless rate was trending down to 5.7 percent as of May.
But these numbers overstate the growth momentum a bit and mark a potential negative second quarter GDP print, noted Morgan Stanley in a research report. The economic growth is expected to have slowed as the weather-related stimulus from net exports fades partially, bringing the growth back to 2.6 percent, added Morgan Stanley.
“Marking-to-market, we nudge our 2016 GDP growth forecast up by 0.4pp to 2.3 percentY, but our 2017 forecast has been lowered another 0.2pp to 1.9 percentY on the back of weaker global growth, a more unstable domestic political backdrop and a necessary slowdown in the housing cycle”, stated Morgan Stanley.
Meanwhile, lower inflation supports sub-consensus RBA forecast. The Reserve Bank of Australia lowered its growth and inflation outlook during its July meeting.
The central bank projects inflation of 1.5 percent for the second quarter of 2016.
Moreover the central bank is expected to be seen lowering its benchmark interest rate by 25 basis points to 1.5 percent during its August meeting. The central bank is then projected to take a brief pause of six months and closely watch the growth and housing indicators before lowering rates further by 50bps in the first half of 2017 to a trough of 1 percent, according to Morgan Stanley.
