What does the Australian economy look like in 2012?

Australia is far from immune to the Euro-zone crisis, but while the global economic outlook is increasingly precarious, Australian forecasts for 2012 are cautiously optimistic.

NAB’s Economics Team offers the following insights for the coming year:


“The likelihood that inflation will stay within the 2-3% target band over the next two years provided the Reserve Bank of Australia (RBA) with scope to reduce the official cash rate by 25 basis points for a second consecutive month in December, taking the official cash rate to 4.25%. And we continue to pencil in another reduction in the cash rate in February, on the basis that a further modest stimulus may be desirable.

Business investment

“The outlook for business investment remains very strong – largely due to investment in the resources sector  – which should continue to support growth over the next year or so.  In financial year terms, our GDP growth forecasts have been strengthened in 2012-13 to reflect stronger consumption and business investment:

  • 3.7% in 2011/12 (was 3.2%) and
  • 3.8% in 2012/13 (was 3.3%).

Labour market

“The unemployment rate remains slightly above 5%. However, as activity picks up in early 2012, so should employment growth and we expect the unemployment rate to drift down below 5% by the end of the year.

“Annual average wage growth is currently running at 3.7% (wage price index, private sector), and we see little reason to expect any slowing in this or other fundamental wage series.

Consumer demand and housing

“Although saving rates are high and consumers remain cautious, consumption growth is expected to be fairly solid in response to rising household incomes in early 2012.

The Australian Bureau of Statistics (ABS) reports that the housing market continues to soften, and that housing remains least affordable in Sydney, and most affordable in Tasmania.

Established house prices fell further in the September 2011 quarter, with the weighted

average of the capital cities falling by 1.2%, to be 2.2% lower over the year.”

Mining and resources

“Mining capital expenditure is estimated to have risen by around 34% in 2010-11 and, using five-year average realisation ratios, is expected to rise by a further 84% in 2011-12. The data implies particularly solid increases over the next two years, increasing by more than seven-fold since 2004-05.

Even using the five-year minimum realisation scale LNG projects could expand Australia’s production capacity by up to four-fold over the next few years.

The boost to capacity in the resources sector will place some downwards pressure on commodity prices in the medium term.

As the global growth outlook becomes increasingly uncertain, commodities perceived to have safe haven properties, such as gold, should continue to benefit from market fragility and investor risk-off attitudes.

Fluctuations in the iron ore price have been particularly striking of late as markets respond to concerns of a potential economic slowdown in China.

Markets will remain focused on European sovereign debt issues, although attention has also been shifting towards emerging economies as skepticism grows over their capacity to weather the global headwinds.

Fiscal Year Calendar Year
2011-12 F 2012-13 F 2011 – F 2012 – F 2013 – F
Private consumption 3.8 2.8 3.6 3.4 2.4
Dwelling investment 0.2 7.8 -1.5 4.3 8.6
Underlying business fixed investment 28.3 14.5 20.4 22.3 12.5
Underlying public final demand -2.3 -0.5 -0.6 -1.5 -0.3
Domestic demand 5.2 4.2 4.1 4.9 3.9
Stocks (b) -0.3 0.2 0.3 0.0 0.0
GNE 4.9 4.4 4.4 4.9 3.9
Exports 6.2 6.6 -1.4 9.7 4.8
Imports 12.6 7.6 11.3 9.8 7.1
GDP 3.7 3.8 2.1 4.5 3.3
- Non farm GDP 4.0 3.9 2.3 4.5 3.4
- Farm GDP -9.4 -1.0 -7.6 0.7 -2.4
Federal budget deficit ($b) 23 10 30 17 NA
Current account deficit ($b) 43 76 32 65 81
(-%) of GDP 2.9 4.7 2.2 4.2 4.9
Employment 1.2 2.4 1.7 2.0 2.1
Terms of trade 2.7 -7.7 14.4 -8.6 -1.6
Av. earnings (Nat. Accts. basis) 5.8 4.8 5.5 5.1 4.6
End of period
Total CPI 1.9 3.7 3.3 3.3 3.2
Core CPI (exc. carbon) 2.1 2.9 2.4 2.8 3.1
- Core CPI (inc. carbon) 2.1 3.2 2.4 3.0 3.3
Unemployment 4.8 4.8 5.2 4.7 4.7
RBA cash rate 4.00 4.50 4.25 4.00 4.50
10 year Govt. Bonds 5.00 5.25 4.75 5.25 5.25
$A/US cents 75.7 0.98 1.02 1.02 0.96
$A – Trade weighted index 1.05 71.4 75.1 73.7 70.7



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