Australia Economic Predictions

Australia’s economy will register a growth, be it modest, in 2016. This seem to be the one forecast most investment banks, as well as the International Monetary Fund agrees on in their latest forecasts on the country. As Australia relied on the mining boom over the past years, its economic situation slowed down when the major commodities took significant blows during the international economic crisis. However, the switch it made from trading mainly with Europe and US, towards trading with Asian countries somewhat protected the country from big blows and contributed to the economic growth.

And since we are returning to growth, the leading investment banks and the IMF predicted, as we said, some interesting figures for 2016. Let’s take the most important economic indicators and see what the forecast is for each of them.

GDP growth

First of all, let’s look at the Gross Domestic Product (GDP). The International Monetary Fund predicted, back in April, a growth of about 2.5%. This rather modest number is based mainly precisely on the dependency of Asia, namely of China for its exports. And since China is registering low economic data, of course this will translate in lower trade with Australia, as well. This is in line with Australia’s first bank, the Reserve Bank that predicted a growth between 2% and 3%. The number seems to be confirmed by leading investment banks. Goldman Sachs (GS) estimates a rate of 2%, based on lower mining exports, but supported by consumption. In its turn, Bank of America Merrill Lynch (BAML) is a bit more optimistic, but its number is still below 3%, meaning a 2.7% expected growth.

AUD/USD below 0.7

Banks agree on another indicator of Australia economy, namely the AUD/USD currency rate that registered quite a decline over the past five years. If the rate was 1.05, back in 2012, it went down to 0.7, in 2015, and it is expected to continue this trend in 2016 as well. Bank of America Merrill Lynch sees it at 0.65, based on higher interest rates registered in the US, as well as on the less predictable China, the main importer for Australia’s mining products. More or less the same predictions come from Goldman Sachs, with a “more optimistic” 0.67 rate.

As a result, the inflation is predicted to go up to 2.7%, in the view of BAML, or 2% seen by GS. Food, however, registered quite a significant price increase last year, with an average of above 20%. However, the domestic demand is expected to register a low increase, in line with wages. Unemployment rate will not decrease in 2016, either, with forecasts by both banks of above 6% for 2016.

In terms of investments, things don’t seem to pick up in this sector either. GS believes this will remain at the same level as in 2015, meaning 2.15%, but gives a 45% chance the federal bank lower by the end of the first half of 2016. BAML sees a stagnation of this indicator, since borrowing is accessible, unemployment rate is somewhat stable and investments have a good chance to pick up.

All in all, Australian economy is expected to grow this year as well, the AUD is expected to stabilize just below 0.7 against the USD and the inflation remains below 3%.