Find below the Melbourne Institute November economic forecasts update. Nothing changed from last month, still forecasting lousy 2.4% growth over this financial year and benign inflation. I have to say though, their unemployment peak of 5.2% looks very optimistic to me. Rather out of the blue, they did include this rather provocative little paragraph that I completely agree with:
Commentators tend to focus on Australia’s goods and services trade links with the rest of the world when assessing the effects of global instabilities on the Australian economy. Australia has been a net borrower from the rest of the world for decades (the last time Australia recorded a current account surplus was in the June quarter 1975). This means that large amounts of funds are flowing out of the economy to service that net foreign investment. This debt servicing is captured by the primary income balance of the current that records interest and dividend payments on net foreign investment. In fact, these net outflows each quarter are about twice the size of the trade balance. The net primary income balance is directly related to foreigners’ willingness to lend to Australia. While we don’t think that foreigners will stop lending to Australians, the experience over recent years has shown that risk premia can rise rapidly with considerable detrimental effects for the domestic real economy. Australia is not immune to a loss of confidence of foreign investors.
Might have fleshed it out a bit more.
I should note, too, that last month they predicted no rate cuts all year, which was, of course, trashed in the subsequent November RBA meeting. Tough business this rate forecasting. We’ll get it wrong eventually, but not yet!
