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MFAA Prosper : Mortgage and Finance Brief 12
20 | Mor tgage & Finance brief Opinion Joshua Williamson, Senior Economist, Citigroup What will happen to the global economy in 2012? We have cut our 2011-12 GDP growth forecasts for many countries, including the Euro area, UK, Japan, US and Canada, with a modest downgrade for China. We expect the overall Euro area to slip back into recession. We forecast global growth will slow from 3% this year to 2% in 2012. How will the Australian economy be affected? We have lowered our forecasts for Australian economic growth in 2012 slightly to a still-robust 3.7%. The downgrade reflects a slightly weaker outlook for exports given the more uncertain global backdrop and slower employment growth. What’s in store for the Australian property market? Low unemployment, little forced selling and strong underlying demand for owner- occupier dwellings suggests little risk of a hard landing for prices. But slightly lower prices will increase affordability for some of those people seeking to enter the market. Will the RBA change the cash rate? Should Europe and the US continue to deteriorate, the RBA would likely respond by cutting interest rates back into the neutral zone, but for now we see no near-term change to rates. Bill Evans, Global Head of Economics, Westpac Institutional Bank What will happen to the global economy in 2012? We expect the global economy to slow markedly in 2012 from growth of 4% in 2011 to 3.2% in 2012. That will be marked by a mild recession in Europe, a slowdown in China and the ongoing ‘stall speed’ of around 1.5% in the US. How will the Australian economy be affected? The Australian economy will have another year of below-trend growth. A cautious consumer and a two-speed economy will constrain growth in housing, consumer spending, and manufacturing and construction. Mining investment will be the stand out, but a lack of skilled workers will constrain the pace of investment growth. What’s in store for the Australian property market? The property market is likely to see a modest recovery in activity and prices from the second half of next year, supported by lower interest rates. Commercial property yields will be supported by low bond rates, although risk margins are likely to widen. Will the RBA change the cash rate? We expect that the Reserve Bank will begin to cut rates by December this year, with a total of 100 basis points over the course of the cycle. Michael Blythe, Chief Economist, Commonwealth Bank of Australia What will happen to the global economy in 2012? Financial market volatility and uncertainties have reached the point where global growth forecasts are being revised down. There is something of a competition to see who can come up with the most pessimistic scenario. The general consensus is that global growth will run in a 3.5-4% band. How will the Australian economy be affected? Although the US and Europe have had growth downgrades, the Asian economies that are more important to Australia, are expected to perform well. I think Asia will determine Australian growth and incomes, but the North Atlantic economies will drive Australian sentiment and financial markets. What is in store for the Australian property market? Market trends will reflect the opposing forces at work in the economy. Some of them, like robust incomes and strong demographic demand, are positive. Others, such as household caution, a high Aussie dollar and global worries, are negative. Will the RBA change the cash rate? We expect the cash rate to sit at 4.75% into 2012. The case for a rate cut is not yet convincing and the medium-term outlook still favours higher interest rates. With the world economy in the grip of uncertainty, we asked three economists for a forecast of the Australian economy and property markets in 2012.* *These opinions were provided on 17 October 2011. Open to question
Mortgage and Finance Brief 11
Mortgage and Finance Brief 13