Australian Economy Stuck In Sub-Par Growth


AUSTRALIA


Australia may be destined for another two years of sub-par economic growth as debt-laden households keep their wallets shut tight, though analysts are hopeful lower interest rates and tax handouts would help it dodge a recession.

Economists polled by Reuters forecast Australia’s A$1.9 trillion ($1.3 trillion) of annual gross domestic product (GDP) would expand 2.1% in 2019, down from predictions of 2.2% in the previous poll and 2.7% early in the year.

Growth was seen picking up modestly to 2.5% in 2020 and 2.6% the year after, though that would still be short of the 2.75% that is considered trend. The best that could be said was no analyst forecast a recession, with the lowest GDP forecast being 1.0% for 2020.



A run of poor quarters has already seen annual growth slow to its lowest in a decade at just 1.8% as falling house prices and sluggish wages dragged on consumer spending.

The Reserve Bank of Australia (RBA) has reacted by cutting interest rates twice in as many months, taking them to an historic low of 1%, while regulators have eased rules on home loans to free up a log jam in bank lending.

Early signs are this has steadied home prices in the long-suffering housing markets of Sydney and Melbourne. Many Australians will also be getting a tax giveaway from this month, which could flow through to consumption.

“We do not see this package as a game changer for consumption given it first comes as a rebate and subsequent tax cuts come with a considerable delay,” said Westpac senior economist Elliot Clarke.

“However, in combination with RBA rate cuts, the tax measures should at least stabilize growth, laying a foundation from which a hoped-for acceleration in infrastructure investment could drive growth back to trend.”

Plenty of risks remain, however, including the threat of an all-out trade war between the United States and China, the latter being Australia’s single biggest export market.


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At home, leading indicators of labor demand have also softened recently and threaten a downturn in what has been one of the strongest sectors of the economy. At least there is plenty of scope for stimulus with core inflation down around 1.5%, having run below the RBA’s 2-3% target band for more than two years now.

Even after the recent rate cuts, the poll showed analysts expected headline inflation of just 1.6% for all of this year, rising slowly to 2.0% in 2020 and 2.2% 2021.



Categories: Economic Indicators

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