Falling dollar to stabilise unemployment

A gradual recovery in Australia’s non-mining economy is underway, buoyed by low interest rates and a depreciating Australian dollar, says NAB.

A recent NAB economic update titled The Bigger Picture – A Global & Australia Economic Perspective, said real GDP is expected to expand by 2.4 per cent in 2015-16 and 3.1 per cent in 2016-17.

According to NAB, “business conditions held up at above average levels, while the positive trend in capital utilisation augurs well for non-mining business investment and the labour market".

“There was also a partial recovery in business confidence as the government’s leadership uncertainties were resolved, while financial market volatility and emerging market concerns have moderated from the heights of the previous month – although market concerns remain elevated.”

NAB expects the unemployment rate to stabilise in coming months before decreasing to approximately 5.75 per cent by the end of 2016. However, this forecast is based on the Australian dollar depreciating to USD$0.68 by mid-2016.

“Looking at the near term, forward-looking measures of the labour market have become more consistently positive, although there is a notable divergence between mining and non-mining states,” the update stated.

NAB pointed out that there are signs the lower Australian dollar is supporting the export sector. In particular, tourism exports are improving in net terms with the process expected to continue going forward.

The bank concluded that downside risks from offshore and weak commodity prices will remain a challenge for the Australian economy.

“Nevertheless, a more resilient non-mining economy suggests the RBA can afford to keep rates on hold to monitor how these risks play out,” NAB said.

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