Leading investment bank Goldman Sachs has forecast Australia’s GDP to come in at a relatively slow 2.0% for 2016 and that the RBA will keep cash rates pegged at 2.00%. The predictions come ahead of the next Tuesday’s release of the government’s Mid-Year Economic Forecast, or MYEFO.
The bank said that the transition from mining boom to a more normal economy would run into headwinds throughout 2016 as weak demand and reduced stimulus from new housing investment weighed on the economy. “We expect that the RBA will leave interest rates on hold in 2016 and 2017 before commencing a modest interest-rate hiking cycle in early 2018” said Tim Toohey, Goldman’s chief economist.
Mr Toohey also warned that a deteriorating budget position, the possibility of a drought and falling mining investment would make 2016 a “pivotal year” for budget strategy and might provide an economic “incentive” to head to an early election.
Goldman’s is forecasting that MYEFO will show a $7 billion deterioration since May in the 2015-16 budget deficit to $42 billion.