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Economic Update and Outlook

Economic Update and Outlook. Sze-Young Lim Senior Economist Australian Industry Group. Key points. State of the global economy Economic conditions in Australia Patchy economic growth in Australia: further evidence from Ai Group’s industry performance indexes

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Economic Update and Outlook

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  1. Economic Update and Outlook Sze-Young Lim Senior Economist Australian Industry Group

  2. Key points • State of the global economy • Economic conditions in Australia • Patchy economic growth in Australia: further evidence from Ai Group’s industry performance indexes • Performance of Manufacturing Index • Performance of Services Index • Performance of Construction Index • Concluding comments

  3. State of the global economy • Global economic recovery underpinned by robust growth in emerging economies

  4. State of the global economy • Significant increases in public debt raise doubts of fiscal sustainability

  5. 1800 1600 1400 1200 Greece 1000 800 Ireland 600 Portugal 400 Romania 200 Latvia 0 Jan - 10 Apr - 10 Jul - 10 Oct - 10 Jan - 11 Apr - 11 Jul - 11 450 400 350 300 Spain 250 200 150 Italy Belgium 100 Finland 50 Netherlands 0 Jan - 10 Apr - 10 Jul - 10 Oct - 10 Jan - 11 Apr - 11 Jul - 11 State of the global economy • Increased risk of sovereign debt default in Europe Sovereign bond yield spreads over German Bunds (basis points)

  6. State of the global economy • Contagion likely to arise from a European sovereign debt default • Adverse impact on financial stability

  7. State of the global economy • European economy set to slow

  8. State of the global economy • Debt overhang in the US extends to households • Fiscal austerity measures and household deleveraging weigh on economy

  9. State of the global economy • Subdued housing market and stock market volatility to curtail private consumption in the US

  10. State of the global economy • Consumer confidence in the US at crisis lows

  11. State of the global economy • Employment growth stalling in the US and Euro area • Unemployment rate remains high

  12. Economic conditions in Australia • Australia’s economy rebounded in the June quarter • Overall domestic demand remains soft • Dwelling and non-dwelling construction weakened due to weakness in housing and construction markets • Recent pick-up in household spending may not be sustainable • Labour market has softened • Challenging business conditions in non-mining sectors of economy • Heightened global economic uncertainty • Strong Australian dollar • Persistent wage pressures • Increased import competition • Uncertainty over carbon tax • Domestic demand could remain soft in the near term while exporters continue to be inhibited by the strong Australian dollar

  13. Economic conditions in Australia • Private consumption remains sluggish

  14. Economic conditions in Australia • Employment growth in Australia slowing

  15. Economic conditions in Australia • Strong Australian dollar

  16. Economic conditions in Australia • Strong Australian dollar weakens manufacturing exports

  17. Economic conditions in Australia • Increased import competition from emerging economies Note: ASEAN comprises Brunei, Cambodia, Indonesia, Lao, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

  18. Economic conditions in Australia • Further evidence of patchy economic growth • Challenging business conditions in manufacturing, services and construction sectors • Manufacturing sector: Ai Group’s Australian PMI

  19. Economic conditions in Australia • Further evidence of patchy economic growth • Services sector: Ai Group’s Australian PSI

  20. Economic conditions in Australia • Further evidence of patchy economic growth • Construction sector: Ai Group’s Australian PCI

  21. Concluding comments • Heightened uncertainty in the global economic outlook following sovereign debt problems in Europe and the US • Increased downside risks to the global economic outlook • Domestic demand could weaken following increased global economic uncertainty and heightened risk aversion in financial markets • Labour market has softened and private consumption remain sluggish • Patchy economic growth: non-mining sectors risk being hollowed out amid the resources boom • Failure to build a balanced and diversified economy could cause the economy to be vulnerable to swings in commodity prices • Governments, businesses, labour unions and industry groups need to cooperate and work closely

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