An update to the outlook for the Australian economy is due this week in the Federal Government’s Mid-Year Economic and Fiscal Outlook (Myefo) which is due for release in the next few days.
Economists say the Myefo is likely to see an upgrade to the growth outlook and a downgrade to the budget deficit projections for 2020-21 reflecting stronger revenue flows and slightly less emergency spending than expected in the Budget.
The AMP’s Dr. Shane Oliver says we should expect 2020-21 GDP growth to be revised up to flat from -1.5%, unemployment at June 2021 to be revised down to 7% from 7.25% and the 2020-21 budget deficit to be revised down to a still huge $200 billion from $214 billion.
“Hopefully peak deficit has been seen, but peak debt will be years away,” Dr Oliver said.
A stronger US dollar and a substantial rise in iron ore prices in particular (but also higher copper, nickel, wheat, sugar, lead, zinc.
Iron ore prices reached $US160 a tonne on Friday – up a third from $US120 a tonne at the time of the budget’s unveiling on October 6.
The budget has the iron ore price falling back to $US55 a tonne by next June – that’s the now traditional fallback price for iron ore from Federal Treasury.
But that’s less than the $US71 a tonne estimate in the most recent resource outlook report from the Department of Industry’s Chief Economist.
The sharp rise in the value of the Aussie dollar will also impact the forecast. It’s up more than 7% since the start of November.
Meanwhile, the minutes from the RBA’s last board meeting (Tuesday) are likely to remain dovish with the RBA prepared to do more bond buying if needed.
Thursday’s jobs data for November is expected to show flat employment after October’s surprise 179,000 surge and unemployment remaining at 7%.
Mid-month updates of activity surveys on Wednesday are likely to show a further improvement, according to Dr Oliver.
Weekly payroll jobs data will also be released on Tuesday.
