Statement 2: Economic Outlook (Continued)
The world economy is forecast to grow 4¼ per cent in 2011 and 4½ per cent in 2012 as strong growth in emerging market economies moderates slightly and the recoveries in a number of advanced economies gather momentum.
Australia's real GDP is forecast to grow 4 per cent in 2011‑12 and 3¾ per cent in 2012‑13 (Chart 3). The main drivers of economic growth are expected to be business investment and commodity exports.
Chart 3: Growth in real GDP
Source: ABS cat. no. 5206.0 and Treasury.
Household consumption is expected to grow moderately in the context of a buoyant labour market and solid growth in household disposable income, with consumers remaining cautious following the GFC. Household consumption is expected to increase 3½ per cent in both 2011‑12 and 2012‑13.
Dwelling investment is expected to be subdued, with forecast growth of 1½ per cent in 2011‑12 and 3 per cent in 2012‑13, dampened by tighter credit conditions and ongoing supply constraints.
New business investment is forecast to grow by a strong 16 per cent in 2011‑12 and 14½ per cent in 2012‑13, underpinned by record capital expenditure in the mining sector, while non‑residential building investment is expected to remain subdued.
Public final demand growth is expected to decline sharply over the next two years, reflecting the conclusion of fiscal stimulus in line with the Government's fiscal consolidation strategy. This is notwithstanding reconstruction spending by the Commonwealth and State governments following the recent natural disasters.
Exports are forecast to grow a solid 6½ per cent in 2011‑12 and 5½ per cent in 2012‑13 as domestic production of non‑rural commodities expands to meet global demand. However, the high Australian dollar is expected to weigh on growth in exports of manufactures and services, notwithstanding the improved global outlook.
Imports are forecast to increase strongly over the next two years, driven by robust domestic demand and the high Australian dollar. While import growth is expected to be broad‑based, the largest contribution is expected to come from an increase in capital goods imports required for major resource projects.
The terms of trade are forecast to reach their highest sustained levels in 140 years, based on strong price rises for Australia's key non‑rural commodity exports. This reflects increased global commodity demand and significant supply disruptions — particularly to Queensland's metallurgical coal exports, due to the floods. The terms of trade are expected to decline gradually over 2011‑12 and 2012‑13, driven by a modest decline in non‑rural commodity prices as increased global supply comes on line.
The current account deficit is expected to narrow sharply in 2010‑11, reflecting the expected increase in the terms of trade, and then widen in 2011‑12 and 2012‑13, reflecting strong growth in import volumes and the expected gradual fall in the terms of trade. The trade balance moved into surplus in 2010‑11 and is expected to remain in surplus over the next two years. The net income deficit is expected to widen over 2011‑12 and 2012‑13, as rising export earnings generate increased equity income outflows.
Employment is forecast to grow 1¾ per cent through the year to the June quarters of both 2012 and 2013, in line with strengthening economic growth. The unemployment rate is forecast to fall, reaching 4¾ per cent by the end of 2011‑12 and 4½ per cent by the end of 2012‑13. The participation rate is expected to remain at around record highs of 66 per cent.
Wages growth returned to trend in 2010, and is expected to increase as the labour market tightens. The wage price index is expected to grow 4 per cent through the year to the June quarter of 2012 and 4¼ per cent through the year to the June quarter of 2013.
Underlying inflation is expected to increase steadily from 2½ per cent through the year to the June quarter of 2011 to 3 per cent through the year to the June quarter of 2013. Following an initial spike associated with the recent natural disasters, headline inflation is also expected to be 3 per cent through the year to the June quarter of 2013.
Nominal GDP is forecast to grow 6¼ per cent in 2011‑12 and 5¾ per cent in 2012‑13, reflecting strength in real GDP growth and the gradual forecast decline in the terms of trade.
Table 1: Domestic economy forecasts(a)
- Percentage change on preceding year unless otherwise indicated.
- Calculated using original data unless otherwise indicated.
- Chain volume measures except for nominal gross domestic product which is in current prices.
- Excluding second‑hand asset sales from the public sector to the private sector.
- Percentage point contribution to growth in GDP.
- Seasonally adjusted, through‑the‑year growth rate to the June quarter.
- Seasonally adjusted rate in the June quarter.
- Through‑the‑year growth rate to the June quarter.
Note: The forecasts for the domestic economy are based on several technical assumptions. The exchange rate is assumed to remain around its recent average level — a trade‑weighted index of around 78 and a US$ exchange rate of around 107 US cents. Interest rates are assumed to move broadly in line with market expectations. World oil prices (Malaysian Tapis) are assumed to remain around US$132 per barrel. The farm sector forecasts are based on average seasonal conditions in 2012‑13.
Source: Australian Bureau of Statistics (ABS) cat. no. 5206.0, 5302.0, 6202.0, 6345.0, 6401.0, unpublished ABS data and Treasury.
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