Australia will ‘lag’ global recovery: UBS

By Tim Stewart
 — 1 minute read

Australian GDP growth and the RBA’s monetary setting will lag behind the global economy, predicts UBS in its global economic outlook.

The emergence of inflation and GDP growth will be slower to emerge in Australia than in the broader global economy – and the RBA will take longer to lift interest rates compared to its peers, says UBS.

The UBS Global Economic Outlook 2018-19 report predicted that inflation could re-emerge over the next 12 months in the global economy, with the "transitory" weakness in US core inflation an outlier.


"The process is still slow for most, but there are notable exceptions: wage growth in central Europe has doubled over the last few quarters, and we view Japan as being on the cusp of a substantial pick-up in inflation," said the report.

When it comes to Australia, UBS said that the Reserve Bank of Australia (which held the cash rate at 1.5 per cent for the 15th month in a row yesterday) will continue to "lag" the normalisation of global monetary policy.

"Despite a clearly better global growth backdrop seeing a rebound of commodity prices since last year, which provided a positive income shock for the Australian [economy], there still has not been a material rise in wages or CPI," said UBS.

"However, we still expect a modest bounce in real GDP for Australia ... to marginally above potential in 2018, which tightens labour markets enough to see a gradual rise in inflation from currently low levels."

UBS, which "called the top" of the Australian housing market in April 2017, said that RBA rate hikes could lead to house price falls and "present growth risks".

"We still expect a 'soft landing' for housing, but RBA rate hikes could cause house price falls, which reverses the household wealth effect and drags on consumption/GDP more than expected," said the report.

"Given a sustained housing construction and price boom, record household leverage, and the lagged impact of macroprudential tightening, there are downside risks if the RBA hike too much and/or early."



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Australia will ‘lag’ global recovery: UBS
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