Australia’s real GDP growth likely to average 2.6 pct in 2016-2017

The Australian economy is undergoing a process of structural adjustment as its prospects face challenges from deteriorating mining investment, deceleration of China’s economic growth and depressed commodity prices. Amidst the domestic transition process, the Australian economy is looking for other growth sources from non-resource investment, the services sector and household spending.

The Australian economy is adjusting to weaker terms of trade and expanding its trading partners. Given this background, accommodative monetary conditions are expected to play a significant role in underpinning the domestic side of the economy, said Scotiabank in a research report.

“We expect the nation’s real GDP growth to average 2.6 percent y/y in 2016-17”, added Scotiabank.

Accommodative monetary conditions are likely to continue to be the norm in the nation for a longer period of time. The Reserve Bank of Australia had cut its key cash rate in August by 25 basis points to 1.50 percent due to low inflation and easing worries about Australia’s housing market imbalances.

The central bank’s apparent aversion to a strong exchange rate is expected to have played a role too as it is considered to complicate the Australian economy’s continuing structural adjustment after the end of a recent resource investment boom, stated Scotiabank.

The RBA is unlikely to further lower interest rate in the near term as the August decision was a pre-emptive step targeted to support the economic momentum in the quarters ahead. Inflation in the country continues to be lower than the central bank’s target range of 2 percent to 3 percent.

“Given muted labour cost pressures, consumer price inflation will likely rise only slightly in the second half of 2016 toward 1.5 percent y/y by year-end,” according to Scotiabank.