Patchwork Economy Trends Continue - CBA

This is part of a regular series of articles by the Commonwealth Bank, who will be using their financial experts to provide news, insight and expert advice for Not for Profit organisations.

The good news is that the RBA’s latest forecasts see the economy rebounding strongly from the disaster induced weakness over the summer. Many not for profits will be pleased to hear this, after suffering a drop in donations as Australian’s donated to disaster campaigns. However the strong growth outlook comes with a sting in the tail

The RBA expects the rapid pace of growth in the economy to generate inflation pressures. An interest rate response is likely to follow. If the outlook seems quite at odds with what many people may be experiencing, McIntyre advises the RBA’s quarterly statement explained why. The RBA is expecting a significant divergence in economic performance across different sectors in the economy over the next few years.

Mining investment and growth in mining production and exports from previous investments are expected to soar. The RBA estimates that the “Mining GDP”, which comprises of mining exports and domestic inputs in the constructions of new mines, currently makes up around 15% of the economy.

The “Mining GDP” is expected to account for two thirds of GDP growth over the next few years. The news for the other 85% of the economy is less encouraging. The mining boom is set to take the lion’s share of additions to the economy’s productive capacity over the next few years. In order to prevent increase in demand in the economy outpacing growth in supply the RBA will seek to exercise constraint. With the mining boom being driven by global forces the burden of these adjustments is likely to fall on the non mining sectors – the remaining 85% of the economy. The RBA predicts the growth in the non mining sector to be the weakest since 1990 – 1992.

James McIntyre believes that not for profits will experience the challenges facing the community first hand with the majority of NFP’s located outside the mining boom regions. To start preparing for these challenges not for profits can take the following steps:

• Tailoring fundraising campaigns to appeal to the mining sector
• Approaching mining companies for workplace giving campaigns
• Keeping investment funds fairly liquid to take advantage of interest rate movement 

Keep up-to-date with all the latest NFP Finance News from the Commonwealth Bank at probonoaustralia.com.au/news/commonwealthfinance

Disclaimer: Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and atwww.research.commbank.com.au. This report is published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.