Near-term economic growth prospects of Australia seem favourable, likely to grow 2.5 pct in 2017-18

The near-term economic growth prospects of Australia seem favourable, but the activity is partly underpinned by temporary factors in the external sector, stated Scotiabank in a research report. The boom of mining has shifted to a production phase from an investment phase, with higher export volumes providing a transitory stimulus to the Australian economy.

A rebound in prices of commodity from year-earlier levels is underpinning the nation’s corporate profits, terms of trade and output growth. But the medium-term pricing environment for LNG, metallurgical coal and iron ore is not expected to rebound.

The recent stabilization of China’s economy is benefitting the Australian exporters. Australia ships nearly 30 percent of its exports to China. However, in the medium-term, Australia will remain vulnerable to China’s subdued commodity import demand. The external sector growth factors have an important role in smoothing out the ongoing balance of the Australian economy toward non-mining based activity.

According to Scotiabank, the household spending is expected to be a key source of growth. Consumer spending is being underpinned by low interest rates, increasing household net wealth and gradually increasing employment. However, muted wage gains and a high household debt burden will restrict consumption growth slightly. Non-mining investment is expected to recover in the quarters ahead, showing higher residential construction activity and public infrastructure outlays.

“We estimate that the Australian economy will continue to expand in line with its potential growth rate of around 2½ percent y/y in 2017–18”, added Scotiabank.