The Australian Treasury has just released the Pre-Election Economic and Fiscal Outlook (PEFO), which shows minimal changes changes to its economic, budget and revenue forecasts since its economic statement released on Friday 2 August (see here for Houses & Holes’ earlier analysis).
Below are the projections for the key macroeconomic parameters:
The terms of trade are expected to decline by 5.75% in 2013-14 and by 3.75% in 2014-15, returning them to around their 2009-10 level (see below chart).
Combined with lower wages growth, the forecast decline in the terms of trade is expected to result in another two years of below average nominal GDP growth, forecast at 3.75% in 2013-14 and 4.5% in 2014-15.
Employment growth is expected to remain below population growth, growing by only 1% in the year to June 2014 and by 1.5% in the year to June 2015, which is expected to see the unemployment rate rise to 6.25% in the June quarter of 2014, where it will remain through to the June quarter of 2015.
Inflation is expected to ease and remain contained over the forecast period, reflecting ongoing spare capacity in the labour market and subdued wage growth.
Treasury notes significant risks to its outlook, especially is relation to worsening global economic developments and sharper than expected falls in mining-related capital expenditures (see below chart).
Finally, below are the key Budget projections, which are little changed from the earlier update, with big deficits expected over the next two years and surplus pushed-out to 2016-17:
