From the latest Morgan Stanley economists’ research report (via Bloomberg) on Australia’s economic outlook:
- “Policy positioning is currently reactive, rather than pre- emptive — unless the monetary and fiscal backdrop turns more stimulatory, Australia could well face its first recession in a quarter-century”
- Predict economic growth to slow to 1.9% in 2015 … before a “shallow recovery” to 2.2% in 2016
- Unemployment to rise to 6.8% from prior forecast of 6.4%
- Probability of further rate cuts over next 12 months now 45%
- MS base case remains holding cash rate at 2.5% until 1Q16
- AUD fundamentals suggest further downside to 76 U.S. cents forecast by MS FX strategists by end-2015
- “East-coast recovery” has stalled
- “While monetary and fiscal scope, particularly infrastructure, can see Australia just skirting recession and recovering into 2016, we believe near-term macro headwinds will see a much softer growth profile and higher unemployment than expected”
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I’m gonna have to apologise in advance to ForexLive readers … I am about to get very boring on this subject. I agree with MS. The RBA is complacent and behind the curve. Economic data is deteriorating, inflation is well in control.
But, I will try to focus on what they are doing, not what I think they should be doing.
