Australia's real gross domestic product will grow just 1.5 per cent in 2011, Goldman Sachs said today, as the bank lowered its outlook on Australia's economy and currency just a day after a downward revision to its global growth forecasts.
“The further deterioration in the economic and financial situation in the Euro area has led us to downgrade our global GDP forecast significantly, from 4.3 per cent to 3.5 per cent in 2012,” Goldman said.
“Over the next few quarters, we now expect a mild recession in Germany and France, and a deeper downturn in the Euro periphery.”
Following a cut of its forecasts for the euro, sterling, US stock prices, bond yields and crude oil, Goldman Sachs followed through with a series of Australian cuts, which also included a cut to its forecast on Australian inflation.
The global bank expects real Australian GDP to grow 1.5 per cent in 2011 and 3 per cent in 2012, after earlier expecting growth of 1.7 per cent and 3.5 per cent, respectively. Underlying inflation is expected to grow 2.6 per cent on average in 2011 and 2.9 per cent in 2012, down from forecasts of 2.7 per cent and 3 per cent previously.
Australia's currency, which surged to three decade highs earlier in the year but has recently fallen hard on the back of growing global economic uncertainty, is expected to trade at US95 cents in three months and $US1 in six and 12 months. Goldman Sachs previously expected the Australian dollar at $US1.08 in three months and $US1.10 in six and 12 months.
Even with the cut forecast, however, the view does project some strength for the currency still in the coming months. The Australian dollar recently changed hands at US95.41c.
"Our forecast of a return to parity for the (Australian dollar-US dollar) is based on the notion that Asia demand remains intact," Goldman Sachs said.
The forecast comes just a day after Australia's central bank held interest rates steady at 4.75 per cent, but paved the way for a potential rate cut as soon as November.
Goldman Sachs forecasts 50 basis points of monetary easing by the end of the year from the Reserve Bank of Australia, citing tighter financial conditions, planned fiscal consolidation and a lower threat from inflation.
Goldman also again slashed its December target for the S&P/ASX 200 by 8 per cent to 4075 points. The bank expects the index to be at 4400 by June 2012.source www.theaustralian.com.au For the latest updates PRESS CTR + D or visit Stock Market news Today
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