Forecasts and Policy Update

Forecast Update of 31 October 2012

  • these are the latest forecasts from the Independent Short-term Forecasting model
  • they factor in the June quarter 2012 national accounts released on 5 September 2012
  • they complete our first year of Independent quarterly forecast updates

Forecast Highlights

  • GDP growth improved from only 1.9% for 2010/11 to an above-normal 3.4% for 2011/12
  • looking ahead, economic growth is forecast to be steady at around the normal annual rate of 3%
  • we forecast future growth (rounded) of 2.75% for 2012/13, 3.25% for 2013/14, and 3.5% for 2014/15
  • unemployment to remain around 5.5%
  • excluding the one-off impact from the introduction of the carbon tax, inflation is forecast to be contained at the lower end of the RBA's 2%-3% range
  • this low inflation outlook leaves room for one or two further cuts in the cash rate taking it to 3% p.a. or 2.75% p.a.
  • firm commodity prices and higher interest rates in Australia than elsewhere should keep the AUD around parity with the USD in the short term
  • even after recent gains, the share market appears under-valued, and will be supported as the effects of the European Financial Crisis become more confined to parts of Europe

Current Policy Issues

  • Simulations with our Independent CGE model undertaken by Treasury for the Business Tax Working Group (BTWG) show a the strong case for cutting the company tax rate
  • Modelling undertaken by Independent Economics shows that the existing GST revenue sharing arrangements under which states with low revenue-raising capacity or high needs receive more than their population share of GST revenue are justified on both equity and economic efficiency grounds
  • Many of the policy aims of the Asian Century White Paper have economic merit independent of the push to become more integrated with Asia.
  • Australia's economic gains from engagement with Asia are partly from geographic proximity but are mostly from economic complementarities

The Independent Short-term Forecasting model

These are the fourth forecasts from the new Independent Short-term Forecasting model of the Australian economy, which is a structural VAR model. It has a special focus on how Australia is affected by developments in global financial markets, which are playing a key role as we deal with the aftermath of the GFC and the continuing European Financial Crisis. Separate to this, Independent Economics has a state-of-the-art Macroeconometric Model designed for medium-term forecasting and macro policy analysis.

Download the Forecasts

Download "Economic Outlook and Current Policy Issues".

For more information, email Dinar Prihardini or phone her on 02 6295 8884.

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