The June 2010 quarter was characterised by resurgent uncertainty in growth prospects for the global economy. That uncertainty has had a large negative impact on global equity markets during the last quarter and continues to overhang them. The uncertainties have centred on the sovereign debt issues in Europe, the strength of the US recovery and a slowing of the economy in China.

In Europe, uncertainty is likely to continue for some time as the extent to which austerity measures currently being introduced in many EU countries, and the UK, drag on demand both in the EU zone and globally. In the US, there are now tentative signs of economic recovery with increasing consumer spending and equipment investment data released in recent weeks. In China, inflation looks to have been contained at around target levels of 3% which would indicate the prospect of a contained slowdown.

In Australia, household spending appears to be slowing with some recent fall back in leading indicators. Recent comments from the Reserve Bank of Australia suggest that interest rates will be on hold at least for the short term, however with unemployment continuing to fall, there is the prospect that any resurgent inflation may need to be contained with harsher monetary policy settings in the future.

Ultimately, the Australian economy’s recovery will depend largely on how the current uncertainties impact world recovery.

Download a pdf version of this report: 2010.07.09 Quarterly Economic and Market Commentary