Australian economy likely to expand 3.3 pct this year, headline inflation to remain weak at 1.1 pct

For the last 25 years, the Australian economy has averted recession because of a mixture of good policy and fortune. An expansive fiscal policy, a floating currency and strong growth in China’s economy all contributed. The next few years’ outlook is one of ongoing growth based on exports, growth in the services sector and continuing infrastructure construction, noted St George Economics in a research note.

The Australian economy expanded 3.3 percent in the year to the June quarter. The economy is likely to expand 3.1 percent for the year to December 2016 and 2.7 percent for the year to June 2017, according to St George Economics. But the economic growth of Australia cannot be taken as granted. A deceleration in housing construction might impact Australia’s growth prospects as would a considerable downturn in China’s economic activity.

Given that the global interest rates are at extremely low levels, a surprising upward correction in rates might result in a sharp downturn in equity prices. This in turn might impact economic growth in Australia and globally, stated St George Economics.  Downturn in business investment, which dropped 14.7 percent in the year to June 2016, is currently weighing on Australian activity. This shows the completion of major resource projects and the lack of new projects to take place, stated St George Economics.

On the positive front, once this slump passes through the system, business investment might contribute again to the GDP growth. This is likely to take place in 2018. Meanwhile, growth in exports, private consumption and investment in dwellings are likely to stimulate growth, added St George Economics.

Domestic demand is expected to stay muted at 1.7 percent this year and 1.9 percent next year. Moreover, the headline inflation is expected to remain weak at 1.1 percent in the year to December and 1.9 percent next year, according to St George Economics.