UBS Slashes Its Australian Economic Growth Forecast

MELBOURNE, AUSTRALIA – JANUARY 26: Victoria Azarenka of Belarus falls to the court in her fourth round match against Dominika Cibulkova of Slovakia during day eight of the 2015 Australian Open at Melbourne Park on January 26, 2015 in Melbourne, Australia. (Photo by Quinn Rooney/Getty Images)

UBS has lowered its 2015 GDP forecast for Australia to 2.2% from 2.8% as it sees more headwinds ahead to dampen the economy.

The re-forecast follows the inflation rate falling to 1.7% from 2.3%, according to December quarter official numbers released today by the Australian Bureau of Statistics.

“Over the past month or so, the global headwinds facing Australia have intensified, with ongoing falls in commodity prices, soft non-US activity data and Europe embarking on large-scale sovereign QE (quantitative easing),” UBS says.

The weaker energy price outlook sees Australia facing another year of negative terms of trade.

“This has implications for economy-wide income and profits growth,” UBS says.

The cut to growth is shared between weaker business and public capital expenditure, largely in the first half of 2015, UBS says.

UBS sees growth slipping from 2.7% this quarter to 1.8% by mid 2015 before rising to 3.3% by mid 2016.

The latest Reuters poll of analysts expects Australia’s $1.6 trillion gross domestic product to expand by 2.7% in 2015, steady on the latest official Australian Bureau of Statistics number.

UBS sees the RBA cutting the official cash rate by 0.5 of one percentage point to 2% in the first half of 2015 with another 0.25% cut in March/May.

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