• Resize text
• Print this page

Market outlook

Global Market outlook for 2012

Australia: Better than elsewhere but facing headwinds

There are two perspectives on the outlook for Australia in 2012.

The first is that the economy will be under pressure from weaker commodity prices and export demand, and from a considerable reduction in government spending that is required to bring the budget back to surplus by 2012-13. Furthermore, the divide between the mining and non-mining economies is bound to grow larger if the Australian dollar remains above parity with the U.S. Dollar. The impact of strong currency is felt much more severely in export-oriented manufacturing and tourism sectors.

The other perspective is that Australia is still likely to be the strongest of the developed economies. The surge in mining investment shows no sign of slowing down – recent surveys show that mining companies intend to increase investment spending by 70% in the first half of 2012. Most forecasters expect Australian GDP to grow by 3.5% in 2012 following 1.6% growth in 2011. We believe GDP growth of 2.5% - 3% is more likely as the non-mining economy continues to struggle in 2012.

In the background, there is another, somewhat gloomier scenario of a euro-zone collapse that would cause another financial crisis. This would lead to a weaker Australian economy and potentially a recession. But Australia should be much better placed to weather a global storm than other economies. A global crisis would again see the Australian dollar drop sharply, potentially below 70 U.S. cents. The Reserve Bank, with the official rate at 4.25%, has the ability to stimulate economic growth by lowering short-term interest rates much more aggressively than any other central bank. The Federal government could also quickly reverse its plan to bring the budget back to surplus. We expect the mining investment boom to continue given the long-term nature of most of the projects.