Australian economy appears to be relatively sound - Westpac

Andrew Hanlan, Senior Economist at Westpac, explains that for 2017, the outlook for the Australian economy appears to be relatively sound.

Key Quotes

“Our forecast for annual real GDP growth for December 2017 is 3.0%, which is a little above trend, of 2.75%. That follows on from the strong end to 2016, with a broad based rebound in activity from the mid–year slowdown associated with the July Federal election.”

“Contributing to a more favourable outlook is the waning of major negatives. The headwind of the declining terms of trade has passed and has become a modest tailwind. The mining investment drag is waning, moderating from a direct subtraction of 0.9ppts in 2016, to a forecast –0.5ppts in 2017, and –0.1ppts in 2018. Consistent with this, there are some signs of improved conditions in the mining states of Queensland and WA. In addition, activity conditions in the year ahead will be supported by: improved global conditions; a lower dollar, boosting exports; lower interest rates; and robust public demand, led by an upswing in investment centred on transport projects – a prospect reinforced by the recent Federal budget. However, weakness in wage incomes, which has constrained consumer spending, remains a downside risk. Also, disruptions associated with cyclone Debbie, which hit Queensland late in March will potentially subtract ¼% from Q2 growth.”

“Moving into 2018, a downturn in home building activity and the associated negative spill–over effects on employment and household spending will weigh on growth. Real GDP growth in the year to December 2018 is expected to be below trend, at a forecast 2.5%.”