Happy new year from the team at W3Treasury. We provide below our outlook for 2016 which in summary points to moderate economic activity, steady unemployment and low inflation pointing to a cash rate "hold" strategy
moderate gdp growth
The headwind in the Australian economy due to the end of the decade long mining boom has been partially offset by the fall in the value of the Australian Dollar, rise in tourism, a strong services sector and growth in retail. These factors are likely to produce moderate economic growth in Australian GDP of around 2.5% for the calendar year 2016. Retail data from Christmas period points to a strong spending profile which is likely to produce strong GDP numbers in the first two quarters of 2016
unemployment steady- 15-24 year band a worry
Unemployment numbers in November 2015 fell to 6% and the participation rate remained steady at 65%. However November monthly change numbers showed unemployment falling by 0.1% and the participation rate up by 0.3%. The 15-24 year age group underemployment rate for November has grown slightly to 30.4%. This may be as a result of more people pursuing higher studies and gap year/s etc. We believe that over the course of 2016, unemployment will remain reasonably steady at around 6.1%.
CPI TRENDING AT THE LOWER END OF RBA TARGET
September 2015 quarter CPI data showed quarterly CPI rise at 0.5% falling from 0.7% from the June quarter. Year to date Sep 2015 CPI rose by 1.5%. The big quarterly rise were in the holiday accommodation, prices of fruits and property related rates and services. These were offset by fall in prices of vegetables, fuel and telco services. Sluggish property market and weak crude prices are significant contributors to overall CPI remaining low. December house prices have fallen in both Sydney and Melbourne and associated property related services are expected to remain sluggish. We expect CPI to remain at around 2.1-2.2% at the lower end of the RBA target of between 2-3%.
aussie dollar to settle below us70 cents
The Australian Dollar is currently trading over 72 US cents. The value of the dollar can be the disruptor in the economic parameters for 2016. With the US Fed finally increasing rates in December which was priced in by the markets since September 2015, the Aussie is showing surprising resilience at 71 -72 US cents mark. We expect that the Dollar is likely to fall to below 70 cents in 2016 and settle around 66 to 67 US cents. This is supported mainly by continuation of weak Chinese demand for the resources sector. However M&A activity has been very strong and off shore investments in Australia such as in NSW poles and wires privatisation is generating huge demand for the Aussie which we believe can be a factor in the value of the dollar remaining at current levels until first quarter of 2016.
weekly market update
| Australia Cash rate Australia 90 d bank bill (mid) Australia 10 y bond US 10y Govt bond AUD/USD AUD/EUR AUD/JPY AUD/CNY ASX 200 S&P 500 Dow Jones Shanghai Composite Brent Crude(USD per BBL) Gold Spot (USD per oz) | THIS WEEK 2.00 2.375 2.88 2.28 0.7306 0.6682 87.98 4.7442 5311 2044 17425 3539 38.31 1062.77 | LAST WEEK 2.00 2.35 2.797 2.21 0.7134 0.6576 87.25 4.6248 5083 2005 17128 3578 36.42 1065 |
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