MS: MYEFO bad for economy

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From Morgan Stanley:

We expect Australia will lag the global rotation from monetary to fiscal easing, with the Mid-Year Budget update still focused on austerity and preservation of the sovereign AAA-rating. This leaves our below-consensus outlook for growth, RBA cash rates and the AUD over 2017 intact.

Fiscal policyfrozen in the AAA headlights: The 2016-17 MYEFO (Mid-Year Economic and Fiscal Outlook) delivered no policy surprises, retaining an austerity agenda and a fiscal drag of -0.5ppt of GDP per annum.Fiscal options are constrained by the government’s intent to retain the AAA-rating,and as such we expect Australia will lag the stimulus seen in China and Japan,and that planned in the UK and the USA. On the rating itself, we are not convinced that modest legislative progress (e.g., on superannuation tax reform) will be enough to offset weaker growth and increasinghousing risks, but we see any downgrade as more likely to come after the May 2017 Budget.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.