Goldman Sachs has had one of the more bearish assessments of the Australian economy in the market for some time.
Next year the investment bank is forecasting economic growth in Australia at just 2%, as it believes, “balancing the transition of economic growth from the non-mining sector then 2016 will likely be worse”. Here’s Goldman:
Our estimate at this time last year that mining investment will subtract 150ppts from economic growth in 2015 is unchanged; however, in 2016 it represent an even greater drag of 200ppts from economic growth. As the housing investment contribution of 40ppts in 2015 transitions into a flat contribution in 2016 the growth driver will rest increasingly on exports. Net exports are forecast to contribute an additional 80ppts to growth (a record 200ppt contribution in total in 2016) with government demand and private consumption to contribute an additional 30ppts collectively. Nevertheless, 2016 is still presenting as a slower year for economic growth relative to 2015.
It also sees an “unwinding” of the recent employment gains, forecasting the unemployment rate to rise to 6.25%, and inflation remaining around 2%. It sees a recovery of sorts in 2017 and 2018, with GDP growth returning to around 3%.
On interest rates, Goldman sees the RBA on hold next year at 2.0% but “ascribe[s] a 45% probability to interest rate cuts in 1H16”. They add:
We expect that the RBA will leave interest rates on hold in 2016 and 2017 before commencing a modest interest rate hiking cycle in early 2018. The risk to the view is that anemic domestic demand growth is sufficient to see inflation undershoot expectations and the unemployment rate to reverse recent gains. Under that scenario the RBA would likely ease interest rates further in 1H16 and interest rate rises would likely occur at an even later date. The path of the A$ will prove influential in shaping expectations for interest rates.
Here are the detailed forecasts.
“In short,” Goldman concludes, “we continue to be well below consensus for economic growth in 2016 and anticipate low interest rates for longer as the familiar threats of the commodity price income shock, rapidly falling business investment and the challenge of addressing Australia’s deteriorating fiscal position weigh on economic growth.”
Not a pretty scenario.