The fall-out from the historic Brexit vote may have given the world economy the ‘interesting times’ that the famous Chinese curse warns of.
Prior to the Brexit referendum world economic growth was subdued, and now it looks like 2016 will record the lowest level of growth since the GFC.
The spectre of the UK leaving the European Union (EU) has increased global uncertainty and impeded the fledgling signs of recovery in the world economy.
We were starting to see signs of fragile improvement in emerging markets and developing economies; and Brazil and Russia were beginning to return to positive growth sooner than previously expected. But now the IMF has downgraded its global growth forecasts in the wake of Brexit uncertainty, dropping 0.1 percent in both 2016 and 2017 to 3.1 percent and 3.4 percent respectively. In our latest Quarterly Economic Outlook KPMG has marginally more pessimistic predictions – we see those figures as being 3.0 percent and 3.3 percent.
Domestically, we believe the Australian economy will grow at 2.9 percent in 2016, which suggests relatively soft growth for the June 2016 quarter.
Despite the end of the resources boom 2 years ago, it is the export sector which is still supporting our growth, with mining production generating economic benefits from a volume (and slight price) perspective, and services also contributing positively to our trade balance.
Finally, the Australian economy continues to grow at rates better than most of the developed economies. But by historical standards it is subdued, and KPMG would argue needs targeted investment in infrastructure projects funded through virtually zero-real cost government bonds and reducing existing inefficient and ineffective government expenditure.