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Creation Date: Thu, 06 Jan 2011 GMT

2011 Economy Forecast

The outlook for global growth is positive, albeit the contribution will be mixed.

• There are encouraging signs that the US recovery is broadening. Corporate America remains in good shape and now job prospects are looking more upbeat.
• Sovereign credit woes continue to dog peripheral European governments
• Rising inflationary pressures in China suggest further policy tightening will be required. Can inflation ease with growth rates at current levels?

The strong Australian economic outlook is on track, but there will be speed bumps.

• We continue to forecast economic growth to accelerate in 2011-12 as a new peak in the terms of trade drives higher investment, exports and employment. Core inflation has probably troughed.
• The strong outlook suggests interest rates are yet to peak. The AUD will remain well supported at current levels.
• The divergence between sectors and regions will become more marked. This could also mean greater volatility in economic activity in the short-term.
• Increased cyclicality in the Chinese economy and commodity demand is the major risk. But policy levers are available.
  

Employment growth should remain solid and the unemployment rate will fall towards 4.5%.

• Current ‘spare capacity' in the labour market and a more volatile growth profile will likely see employment growth ease.
• Divergences between regions and professions will widen. Mining, mining-related services and professional services should outperform. Government-related jobs could surprise on the upside again.
• An unemployment rate below current levels is historically associated with strong wages growth.