Part 2: Economic Outlook
Overview
International growth prospects have weakened since Budget and the risks to global financial stability from the European sovereign debt crisis have intensified, undermining confidence in the global recovery. These developments are being transmitted globally through financial markets, confidence and trade channels.
The deterioration in global conditions has contributed to a weaker outlook for the Australian economy, with forecast growth in real GDP and employment revised down since Budget. Still, the Australian economy is expected to grow at around its trend rate over the forecast horizon, underpinned by a record pipeline of resources investment and strong growth in commodity exports. However, conditions are expected to remain uneven, with the global weakness and uncertainty, the high Australian dollar and cautious household spending behaviour weighing heavily on some sectors.
Australia's real GDP growth is forecast to increase to 3¼ per cent in both 2011‑12 and 2012‑13, employment growth is forecast to be solid, the terms of trade are expected to remain at a high level, and inflation is expected to remain well contained. The unemployment rate is forecast to remain low, but to drift up a little over the next year, easing some of the capacity pressures foreshadowed in the 2011‑12 Budget.
The weak and fragile economic position of the major advanced economies presents considerable risks to the domestic economic outlook. There remains substantial uncertainty about how the European crisis will unfold over coming months, posing considerable risks for global growth. However, barring a more severe slowing in the major advanced economies, the large emerging market economies are expected to continue growing at solid rates, with our linkages to the fast‑growing Asian region continuing to support Australia's economic growth prospects.
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