A renowned US economist has endorsed a pessimistic outlook for the Australian economy over the next 12 months, warning of a Chinese slowdown, halting GDP growth and a 20 per cent drop in the value of the Australian dollar.
Roubini Global Economics, founded by Dr Nouriel Roubini, has warned that a tight federal budget, lower commodity prices and reduced exports will have major flow-on consequences for Australia and cut GDP growth to about two per cent.
Dr Roubini was dubbed “Dr Doom” for his grim economic assessments and prediction of the US housing crash in 2008. The Roubini report now warns the tight federal budget in Australia was timed poorly and will contribute to a reduction in GDP growth.
Combined with looming crunches in China’s credit and property markets, the report forecasts that lower growth and weakened inflation will lead the Reserve Bank to cut interest rates helping drive down the Australian dollar to about 75 US cents.
The report is considered to be one of the most pessimistic on the outlook for the Australian economy, although looming economic challenges in China are causing some to reassess the seriousness of the flow-on impacts.
The report also warns of the overheating in the Australian housing market, saying it is out of sync with Australia’s economic fundamentals including demand for goods and services and the unemployment rate.
“Although some easing of China’s credit crunch will help Australian exports in the short run, we see lower Chinese growth in 2015 as a headwind that will weaken Australia’s growth and inflation next year, and weigh on growth-orientated assets such as equities and the Australian dollar,” wrote Dr Roubini’s local analyst, David Nowakowski.
The Sydney Morning Herald quoted Mr Nowakowski as warning that, while mining output remained strong, investment had weakened and iron ore prices were plummeting.
