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Economic Outlook
62 R ES ERV E B A N K O F AUS T RA L I A
Table 6.1: Output Growth and Inflation Forecasts(a)
Per cent
Year-ended
Dec June Dec June Dec June Dec
2010 2011 2011 2012 2012 2013 2013
GDP growth 2.7 2½ 4¼ 4¼ 3¾ 3¾ 3¾
Non-farm GDP growth 2.1 2½ 4½ 4 3¾ 3¾ 3¾
CPI inflation 2.7 3½ 3¼ 2½ 3 3 3¼
Underlying inflation 2¼ 2½ 3 3 3 3 3¼
Year-average
2010 2010/11 2011 2011/12 2012 2012/13 2013
GDP growth 2.7 2½ 3¼ 4½ 4¼ 3¾ 3¾
(a) Technical assumptions include A$ at US$1.07, TWI at 78 and Tapis crude oil price at US$126 per barrel
Sources: ABS; RBA
remaining largely constant as a share of GDP. While trading partner growth. Import growth is expected
private-sector surveys point to an increase in to be very strong, reflecting the large pipeline of
investment intentions in some sectors and the ABS mining investment and the appreciation of the
capital expenditure survey suggests building activity exchange rate.
should pick up in 2011/12, the high exchange rate, The medium-term outlook for the labour market is
tight credit conditions for some borrowers and little changed from that in February. Employment
subdued consumer spending are weighing on growth is expected to remain solid over the
conditions. forecast period, consistent with the outlook for
Households remain cautious in their spending GDP growth. The forecasts incorporate a number
behaviour, despite strong labour income growth of developments that are expected to contribute to
and consumer sentiment being modestly above labour supply growth, including a modest pick-up
average levels. While income growth is expected to in population growth, a continuation of the trend
be solid over the next few years, the central forecast increase in participation rates (particularly among
assumes that the household saving ratio remains at older workers), and a stabilisation in average hours
around its current level, reflecting above-average worked after a decline over the past decade. The
interest rates, some residual uncertainty stemming labour market is expected to gradually tighten over
from the global financial crisis, and a desire for some the forecast period, with the unemployment rate
further consolidation of balance sheets. Growth in forecast to reach 4¼ per cent by the end of the
dwelling investment is expected to be weak in the forecast period in December 2013.
near term, and then to pick up modestly over the
forecast period in line with solid population growth. Inflation
Resource exports are expected to grow strongly At present, a number of volatile items are
over the next few years, as significant new capacity, simultaneously adding to headline inflation. The
particularly in iron ore, comes on line. Rural exports effect of the severe weather events on fruit and
are also expected to grow solidly, given the improved vegetable prices contributed significantly to
outlook for farm production. The high exchange rate inflation in the December and March quarters.
is likely to weigh on growth in non-resource exports, Along with higher fuel prices, this is expected to see
offsetting the support from above-average major headline inflation above the medium-term target
64 R ES ERV E B A N K O F AUS T RA L I A
On the one hand, it is possible that households companies compete aggressively for labour and
could continue to show significant restraint in other inputs, leading to more pressure on wages
their spending and the household saving ratio and other costs than is envisaged in the central
could rise further. Alternatively, with the forecast. The experience of the first stage of the
labour market continuing to tighten and the resources boom in 2006–2008 was that labour
unemployment rate expected to decline further, market pressures in the affected sectors appeared
households may become more confident and to be relatively contained in terms of their spillover
consumption growth could pick up faster than to the broader labour market. Nevertheless, in that
envisaged in the central forecast. episode with high levels of economy-wide capacity
A second important domestic uncertainty concerns utilisation and strong growth in global commodity
the outlook for investment in the resources sector. prices, domestic inflation picked up significantly.
One possibility is that the considerable complexity A final uncertainty concerns prospects for the
of some of the large planned projects results in the exchange rate and its effect on the economy.
pick-up in resources investment occurring more The significant appreciation of the exchange rate
slowly than is envisaged in the central forecasts. If so since February reflects both an improved outlook
– or if the terms of trade were to weaken more rapidly for Australia’s exports and a range of financial
than in the central forecast – domestic demand factors. The forecasts incorporate the effect of the
growth would be weaker and the tightening of higher exchange rate on the economy, in terms of
the labour market and the pick-up in wage and restraining growth in exchange rate sensitive sectors
inflation pressures would be slower than in the and holding down near-term inflation, although
central forecast. there is inevitably uncertainty as to how large these
The greater risk, however, is that the significant effects will be. R
pick-up in mining investment continues and that