CANBERRA: Analysts have downgraded forecasts for Australian economic growth after the resource-rich nation hit a pot hole in 2016, though a cash windfall from commodity exports should help drive a gradual pick up this year and next. A Reuters poll taken from January 9-17 found analysts estimated Australia’s $1.7 trillion of gross domestic product (GDP) grew 2.4 per cent last year, down from the 2.9 per cent expected in the previous survey in October. The deterioration reflected a surprise 0.5 per cent contraction in GDP in the three months to September, the first negative reading since early 2011.
The setback appears to have been temporary with monthly data pointing to a revival in consumer spending and exports. Rising prices for many of Australia’s major commodities, notably iron ore and coal, delivered the first trade surplus in almost three years in November. Paul Bloxham, HSBC’s head of Australian economics, noted the average price of the country’s commodity export basket had climbed 40 per cent from the trough seen in early 2016. Miners are also shipping more product with export volumes of liquefied natural gas alone rising almost 40 per cent in 2016. “All this is set to lift export values, nominal income growth, corporate profits, tax revenues, wages growth and inflation,” says Bloxham, who tips GDP growth of 2.8 per cent this year and 3.2 per cent next. The outlook is not without potential pitfalls, chief amongst them the risk of a trade war between China and the United States given the past pronouncements of President-elect Donald Trump. China is Australia’s single biggest export market and any US policy that hampers trade would likely spill over to commodity demand and prices.
Domestically, the labour market has also disappointed with a marked shift toward part-time hiring rather than more secure, better-paid full-time jobs. The Reserve Bank of Australia has highlighted employment as one area of concern for this year and might yet be compelled to cut interest rates again should the labour market take a turn for the worse. Rates are already at record lows of 1.5 per cent and the central bank is reluctant to ease further lest it inflate a debt-driven bubble in home prices. Much will depend on whether inflation picks up as policy makers hope. Having spent the past two years under the RBA’s target band of 2 to 3 per cent, analysts predict inflation will accelerate to 2.1 per cent this year and 2.2 per cent for 2018, greatly lessening the need for new rate cuts.
