Australia: Near-term strength, longer-term outlook uncertain - NAB

Research Team at NAB, suggests that the NAB’s latest Business Survey has provided a relatively consistent message on the health of the Australian economy and it continues to show a steady recovery in non-mining activity, with the services sectors clearly leading the way.

Key Quotes

“But while the Survey points to a reasonably upbeat outlook for the near to medium-term, longer term risks are becoming increasingly apparent, particularly going into 2018 as resource exports start to level off and dwelling construction turns negative. These headwinds may require additional policy action to support growth, especially if the RBA hopes to see inflation return to within its target band.

Both global and domestic disinflationary pressures are expected to keep CPI inflation below the target band for an extended period, while structural shifts in the economy and modest economic growth will leave the unemployment rate under pressure.

To stabilise the unemployment rate (at around 5½%) we expect the RBA will feel the need to provide further medium term support through two more 25bp cuts in May and August 2017 (to a new low of 1%). And thereafter raises the prospect of the RBA thinking about the use of non-conventional monetary policy measures.”