Australia

RGE's Q3 2010 Australia Outlook

RGE's forecast for Australia's 2010 real GDP growth has become slightly bearish since other institutions have raised their forecasts to between 2.6% and 5.3%, for an average of 3.6%. The more sanguine forecasts harp on Australia's exposure to Asia—the destination for around 70% of Australia's exports—and the rapid reduction of spare capacity. Bulls also point to the absence of sovereign debt concerns for Australia in contrast to the U.S., eurozone and Japan.

Like other bearish forecasters, we fear the diminishing impact of fiscal stimulus packages domestically and around the world will undermine Australia's rebound and carve a W-shaped growth path. Despite the relative insignificance of the eurozone debt crisis for Australia—only 8% of Australian exports go to Europe and most short-term capital inflows and longer-term investments come from Asia—expectations for the global growth recovery are far too optimistic. The end of pampering by the public sector will keep private sector credit growth subdued.