The Australian Treasury Is Forecasting A Seven-Year Economic El Niño

The softening up period of pre-budget announcements continues with The Australian reporting this morning that Treasury is forecasting that an economic El Niño is about to hit the economy.

The Australian says that Treasury is “expecting the most sustained period of weak growth in Australia for at least 50 years, with the economy forecast still to be feeling the pain of falling commodity prices and weak income growth in 2020.”

This seems an extremely pessimistic outlook in contrast to what the banks and other economic forecasters are predicting but it fits the narrative that Treasurer Hockey, Treasury secretary Martin Parkinson and even RBA governor Glenn Stevens have been pushing recently in relation to the potential for the economy to suffer a period of weak growth ahead.

The key to the pessimism is that Treasury is forecasting a big drop-off in nominal GDP (actual growth not adjusted for inflation) to only 3.7% in 2014 and 3.4% in 2015. That’s well below the 20-year average of 6.3%.

This is a big step down and implies some really weak quarterly GDP data over the course of this year.

But Treasury’s pessimism stretches out to 2018 to where it is forecasting an average of only 4.7%, before a step up to 5.6% by June 2021.

It signals what might be a painful budget night in two weeks’ time.

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