New Country Reports market report from Business Monitor International: "Australia Business Forecast Report Q1 2014"
Boston, MA -- (SBWIRE) -- 12/23/2013 -- core Views Across Australia's manufacturing, services and construction sec -tors, activity levels have been improving, with new orders picking up from their lows in Q213. Optimism from the election of a new Liberal-National government and stimulus measures around the globe have foster a more positive outlook amongst businesses.
We believe that the housing market remains precarious, as af-fordability of home continue to edge to new lows. Given our poor outlook for the Australian job market in 2014, in which we forecast unemployment to reach 6.6% by the end of the year, we believe that demand for housing will decline. The overextended household balance sheets further augur the growth in housing-related credit growth. In our opinion, the Australian banking sector is the sector most leveraged on the housing market and we expect that declines in house prices will adversely impact the industry.
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The Liberal-National coalition was victorious in the federal elections held on September 7, securing a firm majority in the House of Rep -resentatives (lower house). That said, without solid spending cuts on the horizon whilst the compilation of more expenditure proposals to meet social and infrastructure needs, we believe that the fiscal rehabilitation will be delayed and now forecast a surplus only in fiscal year 2021/22.
We forecast the Reserve Bank of Australia (RBA) to hand out 50 basis points worth of cuts in 2014, bringing the cash rate to 2.00% by end-2014, even though the near-term economic outlook has improved. Indeed, we expect the factors that current support the economy to not suffice to outweigh the slowdown in the mining sector, and thus, believe that central bank will continue to attempt to stave off a decline in credit growth by easy monetary conditions further.
Major Forecast changes
We have pushed back our interest rate cut view to 2014, as the near-term pick up is likely to discourage the RBA from touching its interest rate levers. However, we believe the pressure to cut will return over the next few quarters, as the imbalances within the economy come to the fore.
We have raised our medium-term outlook for Australia's trade account, on the back of increased liquefied natural gas (LNG) processing capacity currently under construction. Given that gas exports could account for 15-20% of overall exports by 2017, we have revised our forecast to expect a sharper widening of the trade balance from 2015, and subsequently, a surplus in the current account by 2017. However, in the near term, we expect these projects to place pres -sure on import growth, hence resulting in a slower narrowing of the trade deficit over the 2014-2016 compared to our previous forecast.
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