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Australia’s real GDP is forecast to weaken to 2% this financial year, according to the MYEFO (Mid-Year Economic and Fiscal Outlook) forecasts.

This is 0.5 of a percentage less than the budget estimates in May.

This chart shows the full range of the MYEFO forecast for the domestic economy.

The volatility in commodity markets has led Treasury to make a change to its forecasting methodology for the bottom-line impact of changes in the prices of iron ore and coal prices.

Instead of the usual projected average US dollar value of iron ore prices, for example, the Treasury instead outlines two different scenarios where the price reverts to previous levels of $US55 per tonne at different points in the budget cycle.

Source: MYEFO, Treasury

“Household consumption is expected to continue to grow at a moderate rate, supported by further employment growth and low interest rates,” says the economic analysis in MYEFO.

Household consumption is forecast to grow by 2.75% in 2016-17 and 3% in 2017-18.

Business investment is forecast to fall by 6% in 2016-17 and to be flat in 2017-18.

This reflects further large forecast falls for mining investment of 21% in 2016-17 and 12% in 2017-18.

“In line with the transition in the Australian economy, non-mining business investment is expected to rise moderately over coming years,” says MYEFO.

“Business conditions in the non-mining sector remain above average and borrowing costs remain low. These factors provide a supportive backdrop for an improvement in non-mining investment.”

The unemployment rate has declined since its peak of 6.3%in July 2015. The unemployment rate is forecast to remain around 5.5 in the June quarters of 2017 and 2018.

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