New Market Study, "Australia Business Forecast Report Q4 2012", Has Been Published

New Country Reports research report from Business Monitor International is now available from Fast Market Research

by Bill Thompson

(WireNews+Co) - Boston, MA - 22 October 2012

Since we downgraded our 2012 growth forecast further to 0.8%, the economy has shown signs further deterioration, with weak performance figures from a large cross-section of the economy.

Given the uncertainty around China's economic performance and declines in iron ore and coal prices, we believe that the mining sector will be unable to prevent the Australian economy from entering into recession in 2012. The economy's reliance on overseas funding is likely to compound problems in the event of a reversal, with its banking sector most at risk.

Core Views

View Full Report Details and Table of Contents (http://www.fastmr.com/prod/464402_australia_business_forecast_report_q4_2012.aspx) (http://www.fastmr.com/prod/464402_australia_business_forecast_report_q4_2012.aspx)

The ruling Australian Labor Party (ALP) struggles on with dwindling popularity, barely clinging on to its parliamentary majority as one of its members and the speaker of parliament continues to be sidelined due to investigations on their conduct. Despite pledges to support businesses, we expect more populist policies to be passed in effort to consolidate support for the ALP as elections draw near in 2013.

We continue to expect that the goal of fiscal surplus in FY2012/13 will be forced to take a back seat as voters and business pressure the Treasury into supporting domestic demand. The recent aggressive rate cut undertaken by the Reserve Bank of Australia (RBA) is in line with our view that the central bank will attempt to stave off a decline in credit growth through easy monetary conditions. While we continue to expect the RBA to cut rates further as the housing market weakens further, we believe that these cuts will be unable to boost credit demand.

Major Forecast Changes We upgraded our forecast for services balance as we expect the large deficit in services to reverse, given that much of the current growth is driven by outbound tourism. This growth is unlikely to stay positive as households face falling incomes, con and begin to cut back.

As such, we have revised our forecast to expect a contraction of 10% in services imports in 2012. With the declines in capacity utilisation in manufacturing and services likely to continue and rigidity in capital and labour markets, we believe that businesses will be slow to return to increase their capital expenditures after the recession.

In line with this, we have toned down our estimates for growth in gross capital formation to 3.2% in 2013 and 3.7% in 2014. Consequently, our real GDP growth forecast for 2013 and 2014 now stands at 2.6% and 2.9% respectively.

Key Risks To Outlook China could implement aggressive stimulus measures to support its weakening economy, which would in turn support Australian exports and boost. While we maintain that any Chinese stimulus is likely to be smaller than the previous boost in 2008/2009, this remains a key risk and is something we will be watching closely.

Although the government has chosen an austere budget for FY2012/13, aiming to return to budget surplus despite the souring economic climate. We highlight that there is a risk that a sharp decline in residential home prices will spark even more strain on other sectors

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