2 Minute Wrap Up Of 2012


As the peak in mining investment draws near, the Reserve Bank of Australia (RBA) cut the official cash rate in an attempt to stimulate the non-mining sector of the economy and provide support to the broader economy. There is a strong possibility of further rate cuts in 2013 because we expect GDP to expand by around 2.9% by the end of 2013, well below trend and the current pace. However, the risk is that growth may be much lower due to negative external factors rather than for domestic reasons.


While the impact of Hurricane Sandy has blurred assumptions about the current pace of economic growth, a partial compromise on the ‘fiscal cliff’ is the most likely outcome anticipated by us. However, we believe that 2013 will be a very challenging  year for the US economy with an anticipated sub-trend GDP growth trajectory of around 1.8% over the year.


The Japanese economy contracted in Q3 as slower global growth, tensions with China, the expiration of government incentives and fading reconstruction spending began to impact the domestic economy. We expect a 0.9% expansion in GDP growth in 2013. However, risks are tilted to the downside, due to the potential negative impact from events in Europe, the Middle East and the US impacting the Japanese economy.


Europe again fell into recession in Q3 and this is likely to extend into Q4 and early 2013.  Despite encouraging progress in efforts to stabilise the debt crisis, the outlook remains precarious and we anticipate only a modest growth of around 0.4% by the end of 2013, with the risks tilted to the downside.


The UK economy grew by 1% in Q3 due to the Olympics and the Queen’s Jubilee celebrations, but the outlook is now for weaker growth in the future. The soft global economic outlook coupled with the suggestion that further monetary policy support is unlikely in the near term means a slower growth outlook of 0.9% in 2013, with risks tilted towards the downside.


The Chinese economy has continued to stabilise but does face challenges over the coming year, particularly in light of the uncertain global outlook. Our expectation is for China’s economy to grow at a sustainable pace around 7% by the end of 2013, however it could be weaker should destabilizing events occur in the US, Middle East or Europe.


Thanks to Felix Stephen, Head of Strategy & Research at Advance about reactions to the latest world events and the outlook for key global economies.