Domestic activity robust as export demand improves
We now expect a more pronounced recovery in the second half of the year, so we have raised our 2013 GDP growth forecast from 4.3% to 5.0%. With China recovering, external demand will start to pick up. Meanwhile, the domestic side of the economy remains robust even though the pace of spending growth will be slower than that seen in 2012.
An election is due to be called before the end of April. The current Prime Minister has been a strong advocate of reform, but more remains to be done, including addressing the budget deficit.
Inflation has been very moderate in recent months, but if the external threats recede further and price pressures begin to pick up, we expect the bank to start tightening policy during H2 2013.
Recently, unemployment has fallen below 3%. A healthy labor market and robust average earnings growth should ensure that strong consumer spending and domestic demand drive medium-term growth of at least 4.5%.
Exports and imports
Source: Department of Statistics
Industrial production
Source: Department of Statistics
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