Slowdowns across some of Asia's key economies are likely to curtail Australia's own economic growth in 2016, a major investment bank predicts.
JP Morgan has cut its GDP forecasts for Australia in response to more sobering growth assessments for some of its major trading partners including China, Japan and Singapore.
The bank forecasts real GDP growth for Australia to reach 2.6 per cent for the 2016 calendar year, down from 2.9 per cent previously.
It also trimmed forecasts for 2015, to 2.3 per cent from 2.5 per cent.
"Australia's commodity exports cannot be immune to materially weaker growth to our north," JP Morgan chief economist Stephen Walters said in a note on Wednesday.
JP Morgan's revised outlook is at the bottom end of the Reserve Bank's forecast of 2.5 to 3.5 per cent through 2016.
Last week, JP Morgan declared that Japan likely slipped back into recession last quarter, joining Singapore and Taiwan.
The bank trimmed Japan's 2016 growth forecast to just 0.6 per cent from one per cent.
It also downgraded China's expected growth next year from 6.8 per cent to 6.5 per cent.
"In fact, it now seems that countries receiving 24 per cent of Australia's merchandise exports are in recession," Mr Walters said.
The weaker growth in Asia is expected to slow the appetite f for Australia's resource exports.
As a result, JP Morgan now expects just 3.6 per cent growth in export volumes in 2016 instead of its previously forecast 5.1 per cent.
But Mr Walters said Australia's high quality, lower cost resources are most likely winning market share from higher cost producers, which mitigates the damage.
"We still expect net trade to be a key driver of growth in the economy, but not as much as before," Mr Walters said.
Mr Walters said the weaker outlook for economic growth could push the jobless rate above its previous forecast of 6.5 per cent, further dampening wages growth.
"It follows that the inflation outlook, already benign, could be even less of a concern," he said.
Mr Walters said third quarter inflation figures due for release later in October will be a key factor in determining the RBA's next interest rate move.
"If they are moving towards lowering their growth forecasts in the November (Statement of Monetary Policy), as we just have, further policy easing becomes more likely, possibly even at the preceding November board meeting," he said.
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