For some time MB has had 2017 earmarked as a bust year for the Australian economy. The reasons for this are straightforward given the year will see a convergence of negatives as:
- the capex triptych of an ongoing mining cliff, the car industry shuttering and the roll over of the residential construction boom;
- a continuing terms of trade crash;
- constrained household demand as house prices stall and fall, and
- constrained public demand owing to sovereign downgrades.
We are not forecasting a recession because Australia is so expert at avoiding such via population growth. But we still expect a much more difficult year than most analysts with the economy operating at stall speed and at risk of worse if challenged from any other quarter (for instance any other external shock). The gloomy view also underpins our view that interest rate will keep falling to 0.5% and the Aussie dollar keep trending down to 60 cents.
