We still think commodity prices are at their peak and will gradually come off, but we've just pushed out the timing a little bit.
We're still hoping for a big rebound in export volumes this year, but we're certainly off to a shaky start. We think there's plenty of demand and that prices will be sustained -- it's just getting the product out there.
Business credit growth had been quite weak for the last few months, so a good strong rebound in business borrowings is a positive for capital expenditure, which is needed in Australia.
Growth in employment this year is likely to be substantially lower than over the past year. In that sort of environment, we forecast the central bank will leave interest rates unchanged for the rest of the year.
There is further weakness ahead for consumers. House prices are falling, home construction is soft, consumer confidence is down and oil prices have risen.
I think the bank (RBA) will welcome that with open arms and it will further confirm their idea to sit on the sidelines at this stage and ride out the blip in oil prices.
Recent soft economic numbers for Australia and the fall in the annual rate of inflation add up to an unchanged cash rate on Wednesday. In fact, we forecast an unchanged rate for all of 2006.
We've been expecting exports to pick up some of the slack of the easing domestic demand and we're not seeing this to date. So clearly there are capacity constraints out there that remain.
The prolonged sluggish performance in exports is unwelcome because exports are another area of the economy that needs to improve, given the slowdown in the domestic economy.
Exports are struggling to get traction. The monthly report highlights the capacity constraints in Australia. We need a lot more capital investment to alleviate the bottlenecks. Exports will continue to take away from GDP in the third quarter.
The good news is the surge in business investment is laying the groundwork for improved growth. This is what the central bank wants and so they will stay on the sidelines.
The probability of rate cuts this year is very high and we see 100 basis points of easing starting in July or September.
We don't think there is anything to warrant a rate move from the central bank. Even though building approvals rose in November, housing is still in correction mode.
Corporate spending, particularly in mining, has replaced household spending and home building as the principal driver of growth in the economy. It will also alleviate capacity constraints in the economy.
Employment is likely to be much weaker going forward and the jobless rate will keep rising as the economy cools. Interest rates are on hold.
There's no need for the central bank to raise interest rates again.
These reports provide further reasons for interest rates to remain on hold.
The much-needed rotation in the sources of Australia's economic growth away from consumer spending and home building is well under way.
A rate hike is now 50-50 in May and fully priced by June.
The Reserve Bank will be happy with this result and be content to sit on the sidelines. Companies are wearing some of the price pressure rather than passing it on. When consumers are tightening their purses, retailers don't want to be cranking up prices.
The Reserve Bank has no need to tighten or to ease rates.
It's a pretty disappointing number, much below market expectations and our own. Exports were particularly disappointing.
Consumers have tightened the purse strings and this could continue over the next few months approaching Christmas.
Consumer confidence has fallen five times in the last eight months and signals that the difficult times are not over for households.
The interest-rate advantage with the U.S. will continue to narrow and that will weigh on the Australian dollar.
Input prices are rising a lot faster than output prices, which means manufacturers across all stages of production are taking a hit to their margins.
This is a concern for Australia's growth outlook. We've been depending on better exports to take up some of the slack in the Australian economy as consumer spending cools. So far, that transition hasn't been very smooth.
The downside surprise on economic growth was not large enough to alter the outlook significantly.
The market is now taking a pause to assess just what Rita will do. It won't fully digest Rita until Monday, although the forecasts are looking a little better than yesterday at present.
