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Australia: Rate cut in November and GDP growth of just 2% in 2016 – Goldman Sachs

FXStreet (Delhi) – Research Team at Goldman Sach’s, expect the Australia to grow at just 2% in 2016 and in addition expects a rate cut in Nov following the weak economic conditions of the country.

Key Quotes

“Another weak capex intentions survey is a reminder that we continue to under-estimate the headwind from the mining investment cycle, with the RBA recently estimating that there is still ~2½% of GDP worth of capex to fall out of the growth equation over the coming years.”

“Together with the income shock from lower commodity prices and contractionary fiscal policy, growth headwinds look severe. In addition, recently we have seen further evidence that key tailwinds to growth are dissipating, with lead indicators on the housing cycle softening and population growth slowing sharply.”

“While jobs growth has been resilient, the (weaker) population trends hint at downward revisions. With households’ disposable incomes constrained, we also worry that our forecast consumer recovery is at risk.”

The economic news flow has been sufficiently weak for us to lower our 2016 GDP forecast to +2.0% and reiterate our view that the risk of recession is as high as a one in three chance.

“Our baseline for 2016 remains well below the broader consensus (+2.7%) and the RBA (+2.5%), though the gap has narrowed on a series of RBA forecast downgrades. Given benign inflation and market volatility retightening financial conditions, we expect another 25bpt rate cut by Nov. The risk is skewed to more easing thereafter.”

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