2. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
2MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
SUMMARY OF KEY ECONOMIC FORECASTS
Source: Australian Bureau of Statistics; RBA; OECD, EIU; IMF; various commercial banks forecasts; Economics@Telstra.
The latest internal forecasts for key macroeconomic variables are
compared and contrasted with the current market consensus view:
2015-16e 2016-17f 2017-18f 2018-19f
Telstra 2.6% 2.9% 3.1% 2.9%
Market 2.3%-2.7% 2.7%-3.2% - -
Real GDP Growth: Under the auspices of low interest rates and a low A$,
modest improvement in the growth outlook is expected as economic
rebalancing progresses. Risks to growth now more evenly balanced.
• Export-led economic growth forecast to continue over 2016 and 2017 while
growth in domestic demand expected to remain subdued.
• The current pace of expansion in the non-mining economy is encouraging but
likely to remain sluggish during the early part of the forecast horizon.
• A softer commodity market outlook, high under-employment, and constrained
spending capacity by consumers and businesses expected to weigh on the
short-term growth outlook.
2015-16e 2016-17f 2017-18f 2018-19f
Telstra 6.1% 5.9% 5.7% 5.6%
Market 5.8%-6.4% 5.6%-6.1% - -
Unemployment rate: Surprising resilience in employment growth over 2015
masks excess capacity reflected in high full-time un/N. If the 2016 growth
outlook unfolds as expected, the un/N rate is likely to peak at a lower level.
2015-16e 2016-17f 2017-18f 2018-19f
Telstra 2.2% 2.5% 2.6% 2.6%
Market 1.8%-2.8% 2.3%-2.7% - -
CPI Inflation: With labour market slack expected to persist over the coming
year given soft demand conditions, CPI inflation should remain subdued due to
absence of ‘demand-pull’ price pressures. But upward risks posed by lower A$.
MYEFO=Mid-Year Economic &
Fiscal Outlook (Dec. 2015)
2.6%
2.9%
3.1%
2.9%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
2012-13 2013-14 2014-15 2015-16(e) 2016-17(f) 2017-18(f) 2018-19(f)
Real GDP Growth
(FinancialYear Average)
Telstra forecasts (as at Dec. 2015) FederalBudget (MYEFO)2015
Long-term trend post-1990 Currentmarket consensus
2.2%
2.5% 2.6% 2.6%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2012-13 2013-14 2014-15 2015-16(e) 2016-17(f) 2017-18(f) 2018-19(f)
Consumer Price Index Outlook
(FinancialYear Average)
Telstra forecasts (as at Dec. 2015) FederalBudget (MYEFO)2015*
Long-term trend (1990-current) Currentmarket consensus
* Budget forecast through-
the-year to Junequarter.
3. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
3MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
KEY CHANGES IN GDP & CPI FORECASTS
The major revisions to the growth outlook effected in this forecast update (relative to previous) are to:
1. Decrease business capex in line with the sharp downturn in the mining sector as growth in the Chinese economy moderates sustaining sharply lower
commodity prices;
2. Frontload some public spending including by states; and
3. Modestly lower near-term export growth forecasts even though the ramp-up in mining production and output will sustain elevated levels of resource exports.
Consumer spending forecasts largely unchanged. The outlook for consumer spending is influenced by the evolution of fiscal and monetary policy; a more resilient
performing labour market than previously expected; improved household balance sheets given focus on debt consolidation and higher asset prices; and moderating
support from housing construction (as activity slows). Weak wage growth, high savings & subdued confidence key factors weighing on the spending outlook in 2016.
With respect to the outlook for inflation, the downgrade to the 2015-16 (and to a lesser extent 2016-17) outlook largely reflects:
1. Expectations that the economy will continue to operate with a non-trivial degree of spare capacity keeping growth in labour costs low; and
2. Sustained low demand-pull price pressures in the short-term given the patchwork nature of domestic growth. But structural cost pressures in health, education
and utilities likely to keep cost-push inflation 'sticky‘ which, combined with a lower US$/A$, will bias overall inflation risks upwards.
While domestic demand conditions are expected to gradually improve and strengthen in 2016 and 2017, it is likely that overall inflationary pressures will see the
headline rate oscillate around the middle of the RBA target range (2%-3%) over the medium-term.
-0.1%
0.1%
-0.3%
-0.1%
0.0%
0.1%
-0.2%
0.2%
0.0%
0.1%
0.0%
0.1%
-0.4%
-0.3%
-0.2%
-0.1%
0.0%
0.1%
0.2%
RealGDP ConsumerSpending CPI Inflation UnemploymentRate
Points
Dec. 2015 Forecasts: Key Revisions Since June 2015
(Yearaverage% pointchange)
% point chg in 2015-16 expectation
% point chg in 2016-17 forecast
% point chg in 2017-18 forecast
2015-16& 2016-17EconomicOutlook
1. The short-term growth outlook effectivelyunchanged reflectingdragon growth from lowerbusiness capexandlackof durable
offset by otherparts of the economy such as householdspendingand non-miningbusinesscapex. Exports a keygrowth driver.
2. The unemployment rate now expectedto peakat slightlylower level (~6.1% in 2016) but remain closeto this level for longerthan
previously thought. A key downsideriskto growth in wages, household disposableincome and consumption.
3. Subdued domestic demandconditions sustaininglow inflation in theshort-term. Supports RBA 'low for longer' rate scenario.
Short-term inflation forecasts downgraded
given extent of global disinflation risk;
low commodity prices; weak wage
growth; and subdued domestic demand.
Forecast revisions 2015-16(e) 2016-17(f) 2017-18(f) 2018-19(f)
Real GDP June 2015 2.7% 2.9% 3.1% 3.0%
December 2015 2.6% 2.9% 3.1% 2.9%
% pt change -0.1% 0.0% 0.0% -0.1%
Consumer June 2015 2.7% 2.9% 3.0% 3.0%
Spending December 2015 2.8% 3.0% 3.1% 2.9%
% pt change 0.1% 0.1% 0.1% -0.1%
Business June 2015 -7.1% -2.3% 3.8% 4.7%
Capex December 2015 -8.9% -2.5% 2.1% 5.2%
% pt change -1.8% -0.2% -1.7% 0.5%
Exports June 2015 7.7% 7.2% 6.8% 5.2%
December 2015 6.4% 7.3% 5.6% 4.3%
% pt change -1.3% 0.1% -1.2% -0.9%
Employment June 2015 1.5% 1.9% 1.7% 1.6%
December 2015 1.9% 1.8% 1.8% 1.7%
% pt change 0.4% -0.1% 0.1% 0.1%
Unemployment June 2015 6.2% 5.7% 5.6% 5.6%
Rate (period end) December 2015 6.1% 5.9% 5.7% 5.6%
% pt change -0.1% 0.2% 0.1% 0.0%
CPI (FY average) June 2015 2.5% 2.7% 2.6% 2.6%
December 2015 2.2% 2.5% 2.6% 2.6%
% pt change -0.3% -0.2% 0.0% 0.0%
4. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
4MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
KEY CHANGES IN OTHER ECONOMIC VARIABLES
Reflecting labour market slack, rising demand for labour is likely to be met by increased
hours worked suggesting that the translation of output and employment growth into wage
inflation is likely to remain muted; at least in the short-term. Consequently wage growth is
likely to persist around decade lows in 2016-17.
Factors limiting consumer demand in the short-term include the likely gradual pick-up in
employment as labour demand is initially met by increased hours worked (i.e. converting
part-time employees to full-time where appropriate) which in turn is constraining wage
growth and spending capacity; the savings ratio likely to sustain above pre-GFC levels
reflecting ongoing cautious household behaviour and balance sheet repair; and only soft
household debt uptake (especially relative to pre-GFC and despite low interest rates).
Latest macro
forecasts for 2016-17
broadly in line with
market consensus
6.1%
5.9% 5.7% 5.6%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
2012-13 2013-14 2014-15 2015-16(e) 2016-17(f) 2017-18(f) 2018-19(f)
Employment Growth & Unemployment Rate
(FinancialYear Average)
Unemploymentrate
Employmentgrowth
Long-term trend in N growth
3.0% 2.8%
-2.5%
1.9%
7.3%
3.3%
2.9% 2.5%
Consumer
Spending
Housing
Investment
Business
Capex
Domestic
Demand
Exports Imports Real GDP CPI Inflation
Latest Economic Forecasts: Key Components of
GDP & CPI Inflation in 2016-17
(FYAverage % Change; Market forecasts as at Dec. 2015)
Low market forecast Averageforecast (Consensus)
High market forecast Telstra forecast
0%
1%
2%
3%
4%
5%
6%
7%
8%
2011-12 2012-13 2013-14 2014-15 2015-16(e) 2016-17(f) 2017-18(f)
Consumer Spending, Household Income
& Unemployment Rate
RealConsumer Spending
NominalHousehold DisposableIncome
UnemploymentRate
5. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
5MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
GLOBAL ECONOMIC TRENDS & OUTLOOK
Global growth conditions continue to be challenging and projected to remain modest relative to pre-GFC trends. The recent moderate pace of growth
in the global economy is likely to continue in 2016. Differential prospects for moderate growth persist across advanced and developing economies. The
short-term growth outlook is also weighed down by intensifying geo-political risks in the Middle East, and socio-economic risks such as the European
refugee crisis and elevated terrorism threat.
Sharply lower global oil prices, the downturn in key commodity markets sustaining low commodity prices, and factory-gate deflation in China are
conspiring with subdued demand conditions in keeping global inflation restrained. Cyclically benign and below-target inflation among major advanced
economies as well as China underscores expectation that monetary policy will remain accommodative for a considerable time even as growth recovers.
The weaker outlook for emerging market growth especially in Asia has resulted in the International Monetary Fund (IMF) lowering its macro forecasts
for global growth. As per its latest October 2015 update, the IMF expects global GDP to expand by 3.1% in 2015 (down from a July forecast of 3.3%)
before accelerating to around 3.6% in 2016 (down from a July forecast of 3.8%). Importantly the IMF now views as ‘more pronounced’ the downside risks
to the global growth outlook compared to its assessment in July. Further, it believes that the return to robust and synchronised growth ‘remains elusive’.
The IMF expects the US economy to post growth of 2.6% in 2015 and 2.8% in 2016 (up 0.1% point and down 0.2% points on the July forecast,
respectively) supported by low energy prices, an improved housing market, labour market strength and less fiscal drag.
With Asian growth cooling in 2015, growth is expected to exhibit a modest rebound in 2016 and 2017 driven by gains in domestic and external demand
(esp. as US growth improves). Growth in developing Asia and the ASEAN-5 should accelerate to around 4.5% and 4.9%, respectively in 2016.
Against the backdrop of ‘low-flation’ and downside risks to global economic growth, a non-synchronised outlook for global monetary policy remains
firmly in place (i.e., US monetary policy being gradually and cautiously normalised over coming years while asset buying programs (or quantitative easing
(QE)) to be maintained in Japan and the Euro zone in 2016).
Divergent monetary policy in the US and other major economies likely to underscore a high degree of volatility in financial markets over the short-
term forecast horizon. In turn, this will impact emerging market economies via uncertainty and volatility in international capital flows. In addition, emerging
market currency depreciation and FX volatility (as the US$ strengthens) poses upside risk to inflation and compromises growth in these economies.
Source: International Monetary Fund (IMF); charts produced by Economics@Telstra.
3.4 3.1
3.6 3.8
2014 2015e 2016f 2017f
Global Economy
1.8 2.0 2.2 2.2
2014 2015e 2016f 2017f
Advanced Economies
4.6
4.0 4.5 4.9
2014 2015e 2016f 2017f
Emerging Market
Economies
Annual GDP
Growth Rates
The IMF expects robust &
synchronised growth b/w
advanced & emerging
market economies to
‘remain elusive’.
6. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
6MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
GLOBAL ECONOMIC TRENDS & OUTLOOK (cont.)
China growth outlook unchanged
but IMF remains concerned about
downside risks as leverage-fuelled
asset market excesses unwind.
US growth forecasts favourable
tempered by exposure to softer
Asian growth outlook.
Global growth outlook weighed
down by weaker emerging market
growth. A robust and synchronised
growth recovery remains ‘elusive’.
ASEAN-5 growth outlook resilient
impacted by weaker terms-of-trade.
Real GDP Growth 2014 2015f 2016f
World Output 3.4% 3.1% 3.6%
Change from previous forecasts (July 2015) - 0.2% - 0.2%
Advanced Economies 1.8% 2.0% 2.2%
Change from previous forecasts (July 2015) - 0.1% - 0.2%
United States 2.4% 2.6% 2.8%
Euro Area 0.9% 1.5% 1.6%
Japan -0.1% 0.6% 1.0%
United Kingdom 3.0% 2.5% 2.2%
Australia 2.7% 2.4% 2.9%
Change from previous forecasts (July 2015) - 0.4% - 0.2%
Emerging & Developing Economies 4.6% 4.0% 4.5%
Change from previous forecasts (July 2015) - 0.2% - 0.2%
Emerging & Developing Asia 6.8% 6.5% 6.4%
China 7.3% 6.8% 6.3%
Change from previous forecasts (July 2015) 0.0% 0.0%
India 7.3% 7.3% 7.5%
ASEAN-5 4.6% 4.6% 4.9%
IMF, World Economic Outlook (October 2015 Update)
• The global growth outlook has deteriorated compared to the last forecast update in mid-2015 with risks
skewed to the downside.
• Among advanced economies, the IMF expects growth to strengthen in the US over 2016 consistent with
recent partial economic indicators while the growth recovery in the Euro zone and Japan more cautious.
• China’s growth trajectory is forecast to continue to slow as economic rebalancing proceeds.
• Growth in Australia to improve and remain below-trend in 2016, consistent with internal and consensus view.
Source: International Monetary Fund (IMF); table produced by Economics@Telstra.
Note: A forecast update by the IMF is due in
late January 2016. Modest revisions are
expected but the main themes remain in place.
7. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
7MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
CURRENT STATE OF PLAY: AUSTRALIAN TRENDS
Headline GDP growth masks weakness in the domestic
economy. Supports the RBA’s conditional easing bias.
Source: Australian Bureau of Statistics; Economics@Telstra.
Following a multi-year mining investment boom which has now ended,
the Australian economy continues to go through a difficult transition
period as it seeks to rebalance growth drivers.
Against the backdrop of low interest rates and a lower A$, domestic
data flow over 2015 indicates that the necessary rebalancing of the
economy post-mining boom is occurring only gradually.
As a result, GDP growth is likely to remain below-trend in 2016 until the
shock of a substantial decline in mining investment and global
commodity prices is fully absorbed, which is unlikely for a few years.
Sub-par economic growth in Australia observed in H1 2015 continued in
the September quarter (latest data available). Headline GDP increased
by 0.9% in the three months to September on the back of strong net
exports, pushing the annual rate of growth higher to a still sluggish 2.5%
(up from 1.9% at end-June).
The latest GDP data have highlighted the difficulty in transitioning away
from mining-led growth to broader-based growth, with the economy’s
growth momentum unbalanced and lacking depth. Only net exports
provided a solid contribution to September quarter growth with domestic
demand remaining subdued.
Labour market trends have been broadly favourable over the past year
despite the economy growing at a below-trend pace over this period.
While slack in the labour market persists evidenced by low wage growth
and constraints on full-time employment growth, the unemployment rate
has remained broadly flat.
Risks to short-term growth skewed to the downside with the outlook for
non-mining business capex and employment undermined by lingering
uncertainty over the economic outlook overlayed by political ‘noise’.
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Sep-1999 Sep-2001 Sep-2003 Sep-2005 Sep-2007 Sep-2009 Sep-2011 Sep-2013 Sep-2015
Australia's Growth Momentum Sub-Trend
Exports Key Growth Driver w/ Domestic Demand Subdued
Net exports (% pt cont. to qtrly GDP)
GDP (annual % chg)
Domestic demand (annual % chg)
(All data are real, seasonally adjusted)
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15
Real GDP, Domestic Demand,
CPI Inflation & RBA Cash Rate
Annual growth in Real GDP
RBA Cash Rate
Headline CPI inflation
Annual growth in domestic demand
GDP growth improved in Q3
2015 while domestic demand
weakened. Below-trend growth &
soft demand vindicates RBA
commitment to ongoing stimulus.
8. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
8MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
RECENT TRENDS IN CONSUMER SPENDING
Source: Australian Bureau of Statistics; Economics@Telstra.
Moderation in HDI growth due to low wage inflation. Weak wage growth creating new
jobs (though full-time unemployment remains high) & sustaining current employment
levels.
Growth in consumer spending remains on a tentative upswing after being
sluggish in recent years. Drawdown in savings partly financing spending.
Consumer spending is resilient, but growing at a
lacklustre pace. Subdued consumer confidence,
slow wage growth & concerns about the outlook
key factors weighing on spending propensity.
The resilience of aggregate consumer spending (in real terms)
continues to underscore GDP growth with the quarterly pace of
spending observed in September (+0.7% q/q & 2.7% y/y) slightly above
the average rate observed over 2014 and H1 2015.
Decent employment growth, a positive housing wealth effect and a
modest downward trend in the household saving ratio over the past year
(with the latter now 9.0% cf. a 2014 average of 9.5%) have played a key
role in supporting household expenditure.
Growth in household disposable income (HDI) continues to be resilient
despite soft nominal wage growth over 2015. In the September quarter,
HDI increased by 0.5% (with growth over 2015 at 2.8% cf. 3.6% over
2014). On an annual basis, HDI growth stabilised at around 4% - down
on its recent 10-year average (6.3%).
In an outcome consistent with the moderate pace of growth in consumer
spending, retail sales increased 0.4% in November 2015 (up 4.3%
across the year; the latest data available).
According to the ABS, the latest national retail sales data suggest that
aggressive price discounting continues to buoy retail activity with
consumers having limited capacity to lift spending further.
The outlook for consumer spending is influenced by the evolution of
fiscal and monetary policy with the latter expected to remain stimulatory
in 2016 and 2017; a resilient labour market aided by low wage growth;
improved household balance sheets mainly driven by high asset prices
(esp. housing); and further gains in housing activity.
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Sep-2005 Sep-2007 Sep-2009 Sep-2011 Sep-2013 Sep-2015
Consumer Spending, Household Income and Savings
(Annual % Change)
Savings (% HDI) RealConsumer Spending Household DisposableIncome
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
Sep-2001 Sep-2003 Sep-2005 Sep-2007 Sep-2009 Sep-2011 Sep-2013 Sep-2015
Household Disposable Income & Employment
(Annual Growth)
Wagegrowth
Employmentgrowth
HDI
9. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
9MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
WESTPAC-MI CONSUMER CONFIDENCE
Source: Australian Bureau of Statistics; Westpac-Melbourne Institute; Economics@Telstra.
The RBA can only do so much to support confidence. “Animal spirits” need to lift.
Confidence among consumers effectively at a neutral level. While recently improved,
sentiment continues to be weighed down by high un/N rate and weak wage growth.
Volume growth in retail & total spending holding up well buoyed by low price
inflation. But confidence levels remain broadly subdued weighing on demand.
The latest Westpac-Melbourne Institute research has shown that
consumer sentiment levels in December consolidated most of the
previous month’s gain.
Possible structural changes to the GST, concern over heightened job
insecurity, moderating trends in housing, and limited spending capacity
given weak wage growth, are key issues weighing on confidence.
The index of consumer confidence in December fell marginally from
101.7 to 100.8 (down 0.8% m/m but up 10.6% y/y), and remains broadly
neutral (an index reading below 100 means pessimists outnumber
optimists).
The weight of negative factors impacting consumer confidence remains
a non-trivial threat to the outlook for consumer spending in 2016 likely
sustaining below-trend growth therein.
The unemployment rate remains a key factor impacting consumer confidence.
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.560
65
70
75
80
85
90
95
100
105
110
115
120
125
Dec-88 Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15
Per CentIndex Number
Consumer Confidence & Unemployment Rate
Consumer Confidence(Index)(LHS)
UnemploymentRate(Inverted)(RHS)
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15
Consumer Confidence & Monetary Policy
(Annual % Change)
Westpac-MIConsumerConfidence(LHS)
RBACash Rate-Inverted (RHS)
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15
80
90
100
110
120
130
Index Number
Consumer Confidence & Household Spending
(Quarterly data;Annual Growth Rates)
Consumer Confidence (Index) (6-month lead) (RHS) Real Consumer Spending(LHS)
Real Domestic Demand Real (Volume) Retail Sales
10. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
10MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
RECENT TRENDS IN BUSINESS INVESTMENT
Source: Australian Bureau of Statistics; Economics@Telstra.
Non-mining capex esp. in services has weakened with the outlook to remain subdued.
Current trends in business capex highlight the significant decline in mining and
mining-related capex in line with prior outcomes.
The changeover in the economy from mining-led to broad-based growth
continues to play out slowly. Capex growth now at lowest since early 1990’s recession.
The latest ABS business capex data for the September quarter confirms
that relative to its 2012-13 peak, mining investment is approximately
50% through its multi-year decline. In an outcome well below market
forecasts, aggregate business capex decreased by 9.2% q/q, to be down
20.0% y/y (a ‘recessionary’ level).
The quarterly contraction in business capex (in real or volume terms)
highlights the fact that the economy continues to go through a difficult
transition period.
After a multi-year mining capex boom, the rotation of growth drivers
away from mining (down 10.4% q/q and 29.6% y/y) towards higher levels
of investment in the services sector (down 10.0% q/q and 10.5% y/y)
remains elusive.
While partly boosted by stronger activity in the housing market and the
property-related services sector, a challenging environment for non-
mining capex persists despite the RBA’s accommodative monetary
policy settings and the lower key US$/A$ cross rate.
The tepid outlook for business capex was confirmed by the ABS’ fourth
estimate for business capex in 2015-16 which was 20.9% lower than the
comparable fourth estimate for 2014-15. But estimate 4 is 4.0% higher
than estimate 3 for 2015-16.
As the economy moves away from capital-intensive mining and
manufacturing sectors towards more labour-intensive, services-based
sectors which tend to have lower average levels of investment, it is
expected that growth in aggregate business capex will be slower than in
previous episodic RBA easing cycles. This will sustain below-trend GDP
growth in 2016.
Business capex is weak and will remain a drag on
economic growth in 2016 and 2017.
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Sep-89 Sep-91 Sep-93 Sep-95 Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15
Real Business Capital Expenditure
Quarterly Growth
AnnualGrowth
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15
Real Business Capex by Industry: Post-GFC
(Annual % Change)
Totalindustry Mining
Manufacturing Other industries
11. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
11MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
NAB BUSINESS CONFIDENCE & CONDITIONS
Source: Australian Bureau of Statistics; NAB; Economics@Telstra.
Business confidence & conditions both above their respective 10-year averages. Further gains in business confidence from stimulatory monetary policy limited.
Recent NAB business survey highlights resilience in non-mining business
conditions which continues to gain traction from accommodative RBA policy.
But the improvement in business conditions & growth in domestic demand non-
synchronised. Highlights dominant impact of mining downturn via capex decline.
Despite lower commodity prices and a loss of domestic growth
momentum in Q3 2015, the latest NAB monthly business survey for
November revealed resilience in both business confidence and business
conditions.
In November, the index of business confidence remained favourable and
above its recent 10-year average (+3.4) rising from an index reading of
+3 points to +5 points. At the same time, the index of business
conditions has consolidated well above its recent 10-year average level
(+4) stabilising at +10 index points.
While underlying growth momentum in the domestic economy remains
weak as evidenced by the latest GDP data, the services sector
continues to report favourable business conditions.
The survey also highlights the growing gap between deteriorating mining
and manufacturing sectors, and expanding services sector activity.
-20
-15
-10
-5
0
5
10
15
20
25
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15
Index Number
Domestic Demand Growth & NAB Business Conditions
(Quarterly Data)
AnnualGrowth in DomesticDemand(Real)(LHS)
NAB BusinessConditions(Net Balance, 1 qtr lead)(RHS)
AnnualGrowth
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
Nov-03 Mar-05 Jul-06 Nov-07 Mar-09 Jul-10 Nov-11 Mar-13 Jul-14 Nov-15
Index Number
NAB Business Confidence & Business Conditions
(Monthly Data)
Businessconfidenceindex
Businessconditionsindex
-100
-75
-50
-25
0
25
50
75
-40
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Nov-13 Nov-15
BasisPointsIndex Number
Business Confidence & Change in RBA Cash Rate
Monthlybasispointchangein
RBACash Rate(RHS)
NAB BusinessConfidence
(Index)(LHS)
12. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
12MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
OUTLOOK FOR AUSTRALIAN GDP GROWTH
Thematically, the main macro trends remain unchanged with output (ex.
mining), demand, employment and wages expected to continue to grow
at a soft pace in 2016 assisting in containing inflation.
The cyclical downturn in the global commodity market and sharp drop-off
in mining capex expected to be largely offset by higher mining production
and export volumes.
Export-led economic growth is thus forecast to continue over most of the
forecast horizon while growth in domestic demand could remain subdued.
The export phase of the mining boom is less labour intensive compared
to the recent multi-year investment phase so should boost labour
productivity but do little to lift economy-wide income growth.
Under the auspices of low interest rates and a lower US$/A$, the
transition away from mining-led growth to broad-based growth such as
consumer spending and housing is proceeding, albeit slower than
desired.
Accordingly, the outlook for short-term growth is somewhat pessimistic as
the economy struggles back towards its trend rate (which is arguably
structurally lower). Indeed, with population growth slowing in recent years
due to lower levels of net migration, this will weigh on economic growth
going forward.
Where previously the potential trend growth rate was estimated at around
3.25%, many analysts (inc. the RBA and Treasury) now consider the
potential growth rate being closer to 2.75%-3.0% (see top chart).
Risks to short-term growth remain skewed to the downside with the
outlook for non-mining business capex and employment undermined by
lingering uncertainty over the economic outlook. RBA monetary policy is
likely to remain accommodative and on hold through this year.
Growth forecast to improve by end-2016 though
significant headwinds and risks persist.
2.6%
2.9%
3.1%
2.9%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
2012-13 2013-14 2014-15 2015-16(e) 2016-17(f) 2017-18(f) 2018-19(f)
Australian GDP & CPI Inflation Outlook
(Year average % change)
RealGDP CPIInflation Long-term GDPgrowth rate
New lower
trend rate??
2.6%
2.9%
3.1%
2.9%
-2%
-1%
0%
1%
2%
3%
4%
2013-14 2014-15 2015-16(e) 2016-17(f) 2017-18(f) 2018-19(f)
Points
Contributions to Annual GDP Growth
Net exports Housing
Consumerspending Businesscapex
GDP
Consumer spending, housing& net exports key growth drivers over
the early/middle forecast period offsettingdragfrom weaker mining
capex (and to a lesser extent, fiscal consolidation).
13. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
13MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
CPI PRICE INFLATION: Q3 2015
The modest rise in headline inflation in the September quarter 2015 (up
0.5% q/q and 1.5% y/y) was below market and internal forecasts.
The economy’s soft growth pulse, sluggish domestic demand and weak
wage growth given labour market slack are holding down demand-pull
inflationary pressures. The current era of ‘low-flation’ and a sustained
negative output gap are key factors weighing on the outlook for nominal
and real GDP growth.
The underlying rate of inflation (i.e., ex-energy and food prices), and a
key focus of policymakers, rose by 0.3% in the September quarter,
resulting in the annual rate stepping down from 2.3% to 2.2%. Trends in
underlying inflation are critical for monetary policy deliberations as they
provide a better gauge of fundamental price pressures in the economy.
In terms of annual price increases, elevated price pressures evident
across key areas including household contents and services (+1.8% cf.
post-GFC avg. of +0.9%) and recreation (+1.1% cf. post-GFC avg. of
+0.4%). Structural price pressures remain in health and education.
Source: Australian Bureau of Statistics; RBA; Economics@Telstra.
Cyclically benign inflation in Australia underscoring a
‘lower for longer’ interest rate scenario to support the
2016 and 2017 growth outlook.
-1%
0%
1%
2%
3%
4%
5%
6%
Sep-2005 Sep-2007 Sep-2009 Sep-2011 Sep-2013 Sep-2015
Consumer Price Index: Headline & RBA Core Inflation
Annualheadline% change
Quarterly headline% change
Annual'core'or 'underlying'rate is
averageof RBA'sweighted median &
trimmed mean measures
RBA TargetRange:2%-3%
annualrate(on average)
acrossthe economiccycle
* Average of weighted median & trimmed mean measures.
Consumer Price Index: Q3 2015 3-year
Component (weight in CPI basket) Q2 2015 Q3 2015 Q2 2015 Q3 2015 CAGR
Food (16.8%) -0.2% 0.1% 1.3% 0.2% 1.0%
Alcohol & Tobacco (7.1%) 1.2% 1.3% 4.8% 5.0% 5.4%
Clothing & Footwear (4.0%) 1.3% -1.1% -0.9% -1.0% -1.0%
Housing (22.3%) 0.7% 0.6% 2.5% 2.7% 3.0%
Household contents (9.1%) 1.0% 0.8% 1.4% 1.8% 0.7%
Health (5.3%) 2.7% 0.3% 4.3% 4.8% 4.5%
Transport (11.6%) 3.4% 0.1% -2.4% -2.2% 0.2%
Communication (3.1%) -0.6% -2.0% -3.4% -4.1% -1.4%
Recreation (12.5%) -1.4% 0.8% 0.9% 1.1% 1.3%
Education (3.2%) 0.0% 0.2% 5.4% 5.5% 5.5%
Finance (5.1%) 0.3% 0.5% 2.1% 2.0% 2.0%
Headline CPI 0.7% 0.5% 1.5% 1.5% 2.0%
RBA Underlying CPI* 0.6% 0.3% 2.3% 2.2% -
Quarterly % Annual %
-3%
-2%
-1%
0%
1%
2%
3%
Sep-2003 Sep-2005 Sep-2007 Sep-2009 Sep-2011 Sep-2013 Sep-2015
Australian Economy: Estimated Output Gap* & CPI
(*Output Gap = Actual GDP Growth less Potential (Trend) GDP Growth)
OutputGap (% points)
CPIA% (Deviation from post-1990 average)
Negative output gap
tames inflation
Actual output is less than
full-capacity output
Underlying CPI
steady in lower-half
of RBA target zone
14. TELSTRATEMPLATE4X3BLUEBETA|TELPPTV4
14MACROECONOMIC FORECASTS| MARK KOOYMANS | JAN. 2016 |
OUTLOOK FOR INFLATION & MONETARY POLICY
Source: RBA; Table produced by Economics@Telstra.
While the short-term growth outlook has improved, the RBA
is likely to maintain a conditional easing bias in 2016.
Inflationary pressures in the short-run are likely to remain subdued given little sign that demand is improving and moving onto a sustainable basis. Even
under a modest export-driven GDP growth scenario in 2016 and 2017 broader excess capacity is likely to persist given the patchwork nature of the
economy. Consequently the Australian economy is starting this moderate growth recovery/upswing with more spare capacity than in previous upswings.
This would limit upward pressure on the cost of labour, equipment and materials supporting the non-problematic inflation outlook.
The monetary policy transmission mechanism in the current easing cycle continues to only slowly impact broader activity (ex. housing) given the difficulty
in transitioning away from mining-led growth to broader-based growth. The downturn in mining capex is becoming more entrenched with limited offset
from other parts of the economy. This is sustaining a pace of growth that remains unbalanced and lacking depth.
In the second half of 2015, the RBA maintained a neutral/marginally dovish policy bias against the backdrop of sluggish domestic growth and cyclically
benign inflation, a posture retained at its latest December meeting. While the RBA has not signalled an end to the rate cut cycle (the last 25bps rate cut
was effected in May 2015), the likelihood that it will act on its conditional easing bias remains 50/50 according to some market analysts.
Arguably, the RBA is unlikely to act on this bias unless the labour market deteriorates significantly. The commencement of policy normalisation in the US
in December 2015 (albeit subject to a very cautious and gradual pace) will limit the need for additional monetary stimulus in Australia given the downward
pressure likely to be exerted on the US$/A$ - a lower exchange rate acts as a de facto interest rate cut. Accordingly, the current stance of monetary policy
is likely to be maintained over the coming year. It should be noted that the extent of policy normalisation that does eventuate in the US will be from a
lower end-rate (0.0% to 0.25%) and be more gradual than likely effected in Australia. As such, the interest rate differential support for the A$ will only
erode very gradually. Below are latest RBA forecasts for growth and inflation as per its latest Statement on Monetary Policy (SMP).
Actuals and forecasts are in y/y% change terms. RBA November 2015 SMP. Downgraded RBA forecasts in red.
Previous forecasts (where revised) in brackets. TLS forecasts presented elsewhere in the pack are FY averages.
GDP & CPI FORECASTS Latest Forecasts for year-ended ...
RBA November 2015 SMP (actual) Dec. 2015 June 2016 Dec. 2016 June 2017 Dec. 2017
Real GDP (Q3, 2015) 2.5% 2.25%(2.5%) 2%-3% 2.5%-3.5% 2.75%-3.75%(3%-4%) 3.0%-4.0%(3%-4.5%)
CPI inflation (Q3, 2015) 1.5% 1.75%(2.5%) 1.5%-2.5%(2.0%-3.0%) 2.0%-3.0% 2.0%-3.0% 2.0%-3.0%
Underlying CPI (Q3, 2015) 2.2% 2.0%(2.5%) 1.5%-2.5%(2.0%-3.0%) 2.0%-3.0% 2.0%-3.0% 2.0%-3.0%
Telstra (December 2015) (TLS forecasts in y/y%terms)
Real GDP 2.5% 2.4% 2.7% 3.1% 3.2% 3.4%
CPI inflation 1.5% 1.8% 2.2% 2.6% 2.6% 2.7%
