In the inbox this morning was NAB’s Economics Teams’ Australian Market Weekly.
In it they discuss the RBA’s obvious reluctance to cut rates again, citing the fact it clearly thinks it has done enough, for now.
But NAB does not agree, arguing an expected deterioration of Australia’s employment situation is coming down the pipeline.
… [D]espite the RBA’s commentary that it has done enough to support the economy, one trend it will be unable to ignore in coming months is the rising unemployment rate. The outlook for the economy remains weak, with sub-trend economic growth expected to continue in 2014 and 2015. NAB is forecasting GDP growth of just 2.5% next year and 2.9% in 2015. Business investment is forecast to fall by 7% and 9% respectively over the next two years, and unemployment is expected to rise to 6.8% by the end of 2014.
An unemployment rate that continues to trend higher through 2014 will not only see household spending continue to remain soft, but it will also take an edge off housing demand, helping to lessen fears of a house price bubble.
Here’s the historical evidence based on the relationship between Australian Employment and the NAB Business Survey.
And here is their forecast.
Our new Treasurer will have palpations when he reads this but at least the mining boom seems to have kicked again – that should settle him down a little.
Disclosure: Greg McKenna is an active currency trader and is currently short AUD.
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