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Australia Business Forecast Report Q1 2013 - New Market Report Now Available

New Country Reports research report from Business Monitor International is now available from Fast Market Research


Boston, MA -- (SBWIRE) -- 01/30/2013 -- Core Views

We maintain the view that the mining industry will continue to see weakness ahead, providing little fuel for economic growth in 2013. Related investment in this industry has already slowed, and we do not expect it to pick up in view of our expectations for the Chinese economy to see more deterioration after the temporary bounce in Q312, weighing on the demand for mineral exports from Australia.

We believe that the housing market remains precarious, as affordable homes continue to edge to new lows. Given our poor outlook for the Australian job market in 2013, in which we forecast unemployment to reach 6.4% by the end of the year, we believe that demand for housing will decline. We expect this lack of support from demand to play a part in correcting house prices. We believe that Australian banking is the sector most leveraged on the housing market and expect that a decline in house prices will adversely impact the industry.

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The ruling Australian Labor Party (ALP) barely clings on to its parliamentary majority as one of its members and the speaker of parliament continues to be sidelined due to investigations on their conduct. Despite pledges to support businesses, we expect more populist policies to be passed in effort to consolidate support for the ALP as elections draw near in 2013.

We maintain our forecast for the Reserve Bank of Australia (RBA) to hand out another 50 basis points worth of cuts by the end of 2012. This is in line with our view that the central bank will attempt to stave off a decline in credit growth through easy monetary conditions. While we continue to expect the RBA to cut rates further as the housing market weakens, we believe that these cuts will be unable to boost credit demand.

Major Forecast Changes

We upgraded our forecast for government consumption as we expect the cutbacks made in 2013 will only leave the government with the need to spend to support the economy as growth from the private sector falters. As we expect a much slower recovery than that seen after the 2008/09 crisis, we believe the government will find it difficult to cut its consumption expenditures and, therefore, maintain its expansionary fiscal policy at least into 2014.

While we maintain our expectations for the RBA to cut its official rates to 3.00% by end 2012, we have highlighted the growing risks that the central bank will instead postpone the cuts to 2013 on the back of the temporary bounce in Chinese data. We expect the RBA to pursue even more easing in 2013, and forecast the authorities to cut rates to 2.50% by the end of the year.

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