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Quarterly Economic Outlook: Global and Australian Forecasts – March 2017

Quarterly Economic Outlook – March 2017

The Australian economy experienced mixed outcomes in the second half of 2016, boosted by strong export growth. Whilst globally, geopolitical factors continue to dominate considerations around future world growth.

Brendan Rynne

Partner, Chief Economist

KPMG Australia


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Global economy

  • The world economy slowed in 2016 to record the lowest rate of economic growth since 2009.
  • Geopolitical uncertainty remains high, with concerns about political leanings towards ‘closing borders’ and increased protectionism.
  • Inflationary expectations have been re-rated over the past few months, with previous concerns about the emergence of global deflation now abated.
  • The US has seen increased employment, leading to wages growth and a closing in the output gap. The FoMC increased the FFR by 25 bp, and the ‘dot plot’ contained in the latest minutes shows members expect three more 25 bp rises in each of 2018 and 2019.
  • Long run interest rates are rising across the globe, with 10 year yields increasing 90 bp in Australia, 60 bp in the Euro Area, Canada, and China, and 50 bp in the US since October 2016.
  • Oil prices have risen by US$7/bbl since October 2016 to now be around US$55/bbl.
  • India has experienced a significant self-inflicted economic disruption due to currency demonetisation reforms.

Australian economy

  • There is a growing level of frustration in business and the wider community with the political economy in Australia, with all sides of politics seemingly focused more on short term ‘gotchas’ than implementing growth enhancing policy.
  • The Australian economy experienced mixed outcomes in the second half of 2016, achieving growth of -0.5 percent in 2016Q3, but then bouncing back with strong growth of 1.1 percent in 2016Q4. This growth was underpinned by higher household consumption activity, strong growth in exports, and a significant uplift in public sector capital expenditure.
  • The winter crop has achieved a ‘bumper’ harvest, up nearly 50 percent over 2015 levels.
  • LNG exports are forecast to increase from about 37MT in FY16 to 54 MT in FY17 and then to 67MT in FY18, generating an additional $20 billion in export revenues.
  • Australia's Terms of Trade has lifted 9.1 percent over the December quarter, and 15.6 percent since the beginning of 2016.

Economic Outlook

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